undefined | unit 1 generally accepted accounting principles

UNIT I

Generally Accepted Accounting Principles (GAAP)

Q1) Define Accounting Concept with its Principles.

A1) Accounting concepts define the assumption on the basis of which financial statement of a business entity is prepared. Concepts are those basic assumption and condition which form the basis upon which the accountancy has been laid.

Accounting principles

They should be based on real assumption.

They must be simple, understandable and explanatory.

They must be followed consistently.

They should be able to reflect future predictions.

They should be informational to users.

Accounting convention emerges out of accounting practices, commonly known as accounting principle, adopted by various organizations over a period of time. Accounting bodies may change any of the convention to improve the quality of accounting information.

Q2) What is Money measurement concept?

A2) A unit of exchange and measurement is required to uniformly account for a company's transactions. The common denominator chosen in accounting is the currency unit. Money is the lowest common denominator for measuring the exchangeability of goods and services such as labor, natural resources and capital.

The concept of monetary measurement considers accounting to be a process of measuring and communicating financially measurable company activity. Obviously, the financial statements should show the money spent.

The concept of measuring money means two limitations of accounting. First, accounting is limited to the generation of information expressed in monetary units. It does not record and convey other relevant but non-monetary information. Second, the concept of monetary measurement concerns the limitation of the monetary unit itself as a unit of measurement.

There are concerns about purchasing power, which is the main characteristic of currency units, or the amount of goods and services that money can obtain. Traditionally, financial accounting has addressed this issue by stating that the concept assumes that the purchasing power of a currency unit is stable over the long term or that price changes are not significant. Although still accepted in current financial reporting, the concept of stable monetary units is subject to continuous and permanent criticism.

Q3) How can you explain Dual aspect concept?

A3) This concept is at the guts of the whole accounting process. Accountants record events that affect the wealth of a specific entity. The question is which aspect of this wealth is vital. Accounting entities are artificial creations, so it's essential to understand who their resources belong to or what purpose they serve.

It's also important to understand what sorts of resources you manage, like cash, buildings, and land. Therefore, the accounting record system was developed to point out two main things: (a) the source of wealth and (b) the shape it takes. Suppose Mr. X decides to line up a business and transfers Rs. 100,000 from his personal checking account to a different business account.

He may record this event as follows:

Obviously, the source of wealth must be numerically adequate to the shape of wealth. S (source) must be adequate to F (form) because they're simply different aspects of an equivalent thing, that is, within the sort of equations.

In addition, transactions or events that affect a company's wealth got to record two aspects so as to take care of equality on each side of the accounting equation.

If a corporation acquires an asset, it must be one among the following:

(A) Other assets are abandoned.

(B) There was an obligation to pay it.

(D) The owner funded the acquisition of the asset.

This doesn't mean that the transaction affects both the source and sort of wealth.

There are four categories of events that affect accounting equations:

(A) Both the source and sort of wealth are increased by an equivalent amount.

(B) Both the source and sort of wealth are reduced by an equivalent amount.

(D) Some sources of wealth increase and a few decreases without changing the shape of wealth retention.

The above example shows category (a) because once you start a transaction for an entity, the source of wealth and therefore the sort of wealth, cash, increases from zero to rupees. 1,00,000. In contrast, X may plan to withdraw Rs. 20,000 cash from business.

In that case, the financial position of the entity would be:

It is essential to know why each side of the equation are reduced. By withdrawing cash, X automatically reduces the availability of personal funds to the business by an equivalent amount. Now suppose Mr. X buys a listing of products for Rs. 30,000 in cash available. His capital supply remains an equivalent, but the composition of his business assets does.

The two aspects of this transaction aren't within the same direction, but are compensatory and are increasing stocks that set a cash reduction. Similarly, sources of wealth are often suffering from transactions. So, if X gives his son Y, it becomes Rs. 20,000 shares of the business by transferring some of his own profits, the consequences are:

However, if X gives YR. He personally receives $ 20,000 in cash, and when Y puts it into the business, each side of the equation are affected. Y capital Rs. 20,000 is balanced by additional Rs. 20,000 in cash, X capital remains rupees. 80,000.

Q4) Write note on Periodicity Concept.

A4) According to this concept, accounting should be created after all periods, not at the end of the entity's lifetime. This period is usually one calendar year. In India, it lasts from April 1st of the year to March 31st of the following year.

This is also known as the concept of fixed accounting periods. According to the concept of "going concern", an entity is expected to have an indefinite life. It is inconvenient for an entity to measure the performance it has achieved in the normal course of its business.

If a spinning mill lasts for 100 years, it is not desirable to measure its performance and financial position only at the end of its life.

Therefore, a small but feasible portion of the entity's life cycle is selected to measure performance and confirm financial position. A year is usually spent measuring performance and assessing financial position. However, it can be 6 months, 9 months, or 15 months.

According to this concept, accounting should be created after all periods, not at the end of the entity's lifetime. This period is usually one calendar year. In India, it lasts from April 1st of the year to March 31st of the following year.

Therefore, you do not need to look at revenues and expenses over an excessively long time frame for performance evaluation. This concept makes the accounting system work and makes the term "occurrence" meaningful. Given the infinite time frame, nothing happens. There can be no unpaid expenses or unreceived income. Accrued expenses or income accrued only occurs when you refer to a finite time frame called the accounting period.

Therefore, the concept of periodicity is simplified in the following ways:

(I) Comparison of financial statements for different periods

(Ii) Unified and consistent accounting to identify business profits and assets

(Iii) Matching costs and regular income to obtain correct results of business operations

This concept is derived from the concept of going concern. As we have seen, companies are expected to continue their business indefinitely unless they know the opposite. However, investors and other users of corporate accounting information cannot afford to wait forever for the information they need for their diverse needs. To meet their needs, the "lifetime" of an entity is divided into any specified time period that is shorter than the lifespan of the enterprise. The normal reporting period is 12 months (1 year). Companies also report financial information summarized on an interim basis: semi-annually, quarterly, and even monthly. This is a concept called periodicity, period assumptions, or simply accounting periods. Periods are usually identified in the financial statements.

Periodicity allows report users to compare information over specific time periods and between companies in the same industry (as a basis for decision making). Aside from these advantages, the concept of periodicity has certain drawbacks. For example, this concept assumes that you can identify a business transaction over a specific time period, even if you know that some transactions (such as the purchase of fixed assets) will affect many periods. Also, as the concept implies, determining income on a regular basis leads to a comparison of the results of consecutive periods. Such comparisons can be misleading as the patterns of business activity change over time. In addition, recurring accounts require arbitrary allocation and allocation methods.

Q5) Explain the concept of accrual accounting and Cash basis of Accounting.

A5) According to the Financial Accounting Standards Board (USA):

"Accrual accounting is that the financial impact of transactions and other events and situations that affect a corporation on cash, not only during the amount during which it had been received, but also during the amount during which those transactions, events and situations occur. Accrual accounting is paid to the corporate as more (or perhaps less) cash spent on resources and activities, also because the start and end of the method. it's associated with the method of being returned. We recognize that purchases, production, sales, other operations, and other events that affect a company's performance during a period often do not match the receipt or payment of cash for that period. "

Realization and matching concepts are central to accrual accounting. Accrual accounting measures revenue for a period of time as the difference between the revenues recognized during that period and the costs that match those incomes. In accrual accounting, the period revenue is usually not the same as the period cash receipt from the customer, and the period cost is usually not the same as the period cash payment.

Cash Basis Accounting:

In cash-basis accounting, sales are not recorded until the period in which they are received in cash. Similarly, costs are deducted from sales during the period in which the cash payment was made. Therefore, neither realization nor matching concepts apply to cash basis accounting.

In reality, "pure" cash-basis accounting is rare. This is because the pure cash basis approach requires the acquisition of inventory to be treated as a reduction in profit when paying the acquisition cost, not when selling the inventory. Similarly, the cost of acquiring plant and equipment items is treated as a reduction in profit if these long-lived items are paid in cash rather than after they have been used.

Obviously, such a pure cash basis approach would result in a balance sheet and income statement with limited usefulness. Therefore, what is commonly referred to as cash-basis accounting is actually a mixture of cash-basis for some items (especially cost of goods sold and period costs) and accrual-based for others (especially product costs and long-term assets). This mix is sometimes referred to as modified cash-basis accounting to distinguish it from the pure cash-basis method.

Cash-basis accounting is most often seen in small businesses that do not have large inventories because they provide services. Examples include restaurants, hairdressers, hairdressers, and income tax filing companies.

Most of these establishments do not provide credit to their customers, so cash-basis profits may not differ dramatically from accrual income. Nevertheless, cash basis accounting is not permitted by GAAP for any type of entity.

Q6) What are the principles of Accounting?

A6) The basic assumptions and concepts mentioned above have been modified to make accounting information useful to a variety of stakeholders. The principles of these changes are as follows:

Principles are:

1. Cost-benefit

2. Importance

3. Consistency

4. Be cautious

Cost-benefit Principle

This amended principle states that the cost of applying the principle must not exceed the benefits obtained from it. If the cost is greater than the profit, then the principle needs to be changed.

2. Materiality Principle

The principle of materiality requires that all relatively relevant information be disclosed in the financial statements. Important non-essential information is omitted or merged with other items.

3. Principle of Consistency

The purpose of the principle of consistency is to maintain the comparability of financial statements. The rules, practices, concepts and principles used in accounting should be continuously adhered to and applied annually. Comparing the financial results of a business between different accounting periods is important and meaningful only if you follow consistent practices in reviewing them. For example, asset depreciation can be provided in a variety of ways, but whichever method you choose, you must do it on a regular basis.

4. Principle of Prudence (conservatism)

The principle of prudence takes into account all expected losses, but leaves all expected benefits. For example, when valuing a stock in trade, the lower of the market price and cost is taken into account.

Q7) What is accounting software?

A7) Accounting software is a useful tool for recording the flow of funds in a company and examining its financial position. You can use it to record transactions, generate reports, manage customer and vendor contacts, create purchase orders, track inventory levels, bill customers, and monitor account balances. [Check out the best accounting software and invoice generator recommendations.]

“Accounting packages help us organize our records and' force' to a systematic structure,” Ken Stalcup, senior director of Houlihan Valuation Advisors, told business.com. "

Q8) What are the features of accounting software?

A8) Now that you understand what accounting software is and why you need to use it, it's important to know the tools and features you're looking for when choosing a system. Almost all online accounting software uses double-entry bookkeeping to ensure accuracy and includes accounts receivable, accounts payable, banking and reporting capabilities. Some also include inventory management, project management, time tracking, and payroll tools, but these features are typically included in higher-tier plans or add-ons that cost extra. Here are some core elements of accounting software.

1. Accounts receivable

It needs to be able to proceed the bill and track what the consumer is borrowing (accounts receivable, or A / R) and their payments. Here are a number of the most A / R features to seem for:

Invoice processing

At a minimum, your accounting software must be able to process your bill. When money is borrowed from you, you need to know from whom, how much, and when to expect payment. All accounting systems allow you to print invoices, but in most cases, you can email invoices. The system must remember basic customer data like name, address, account number, and standard terminology. Most software systems today also remember standard prices for a variety of products and services.

Automatic billing

This ensures that your revenue isn't delayed because you forget to send your invoice. In addition, with automated statements and delayed reminders, the accounting software acts as a collection department to notify customers of invoice payments.

Payment procedure

Many accounting systems allow customers to pay invoices online by clicking the button on the electronic invoice to send. There are many benefits to vendors, including reduced staff time spent processing checks and making bank deposits, increased payment security, and reduced processing time. However, it costs money. Expect to pay the same fees as a credit card processing company to get your accounting system to process your debit and credit card payments.

Some systems allow you to deposit ACH payments directly into your checking account. Also, there is no such thing as automatically paying your checking account every month without waiting for a check by mail or sending money to a bank. This also costs money in many cases, but is usually cheaper than accepting card payments.

2. Accounts payable

No one likes to pay invoices, but tracking what you owe is essential for any business. There are many ways the accounting system handles the outflow side of funds. Here are a number of the foremost useful accounts payable (A / P) features:

Purchase order

Processing and borrowing purchases is one of the main tasks of accounting software, but its features range from creating simple purchase orders to following quotes, purchasing and paying.

Vendor credit memo

It's easy for businesses to lose track of all the credits that vendors frequently distribute, either as rewards or returns. However, credit notes are as valuable as cash, so a system that can track them can help keep costs down.

Automatic payment

From scheduling bank payments and direct deposits to printing checks, many A / P modules fully automate the payment process and keep you up to date.

IRS tax form

Having a database of the most common tax returns, such as 1099 and 1096, can save you a lot of time. This is especially true if the accounting system can fill out all the required data on the form and submit them electronically to the IRS. Electronic tax payments and form submissions can help prevent penalties for late payments.

3. Salary

In some accounting systems, the payroll module is very sophisticated and provides a complete payroll service that does everything from time calculation and wage processing to payroll tax payments and 401 (k) deductions. some characteristics are:

Fluctuating wage schedule

A system that can accurately calculate the amount to be paid to an employee, whether paid to the employee or paid on an hourly basis, is essential. Problems occur when there are many intermittent ones.

Workers or part-time staff. Many of them are paid on weekly basis or biweekly. The software needs to be able to handle different payroll schedules, along with different types of rewards (commissions, salaries, profit sharing, bonuses, etc.) and benefits (health insurance, severance pay plans, and even paid parking benefits).

Direct deposit

This is essential for accounting software's recent support, as most people expect their salaries to be deposited directly into their bank accounts. With decent accounting software, you should be able to set up scheduled direct deposit payments.

Automatic tax calculation

This ranges from basic deduction-only processing to providing sophisticated tax rates and printing relevant forms. Check if your system supports new employee reporting, expense tracking, W-4 and W-9. Would you like to process monthly federal tax deposits and quarterly federal tax reports, such as Form 941? Would you like to process annual reports and returns for W-2, W-3, Form 940, 1099, etc.? Can I file a tax return for income tax or unemployment insurance? Can you handle workers' accident compensation insurance calculations and payments?

Expense refunds and deductions

If employees bear tax-deductible expenses such as travel and entertainment expenses, they need a system that can handle these refunds and ensure that payments meet the tax deadline.

4. Bank

At the very least, accounting software needs some form of link to your bank account. This allows you to make direct payments and import real-time data from your bank into your accounting system. Some software can go even further.

Account adjustment

If you have multiple bank accounts, software that can track and adjust all of them is essential. Make sure your program includes the General Ledger feature and the check book reconciliation.

Bank deposit preparation

These days, accounting packages that can't handle basic electronic deposit settings are unheard of, but you need to know what types of electronic payments you can handle.

Please check the handling

If you pay a lot of money with a check, you can save a lot of time by using a system that can print and process your check. Also be aware of other features such as check invalidation and notification of duplicate check payments.

Q9) What reporting option does accounting software offer?

A9) In addition to the set of features available in accounting software, the quality and quantity of reports that a system can generate vary greatly. Some systems offer a wide range of reporting options in virtually unlimited categories. Others only provide basic reports: depositing and withdrawing money. Here are some better options.

Standard report

The accounting system must be able to generate the usual reports used in business, such as income statements (income statements), balance sheets (assets and liabilities), cash flow statements, accounts receivable, accounts payable, and salary summaries.

Customizable report

A system that enables customizable reporting options allows you to create and compile selected reports. Look for a system that allows you to easily add or remove columns from standard reports, resize column widths, and remember custom reports for future replication.

Graph summary

Long lists of numbers can be difficult to interpret, so software that can convert data to image formats such as pie charts and bar charts can help you understand where your money is going. Look for the ability to display the previous year on the same graph as the colour coding feature for easy comparison.

Cost forecast

All reports help identify trends, but systems that can interpret data, perform statistical analysis, and make forecasts help make financial decisions based on facts rather than guesses. Look for a system that includes budgeting, quoting, and other cost features.

Subsidiary report

If you have multiple businesses, a system that can integrate certain financial aspects can provide a better view of your entire portfolio than you can estimate from individual reports.

Accounting software is employed to gather and report information about the financial viability of a business. This software is vital for correct management of your organization. Before deciding which software package to use, it's important to know the various sorts of accounting software and therefore the situations during which you would like to use each.

Q10) Show the overall classification of accounting software.

A10) The subsequent list shows the overall classification of accounting software.

Spreadsheet

You can run a really small business just by using electronic spreadsheets in your accounting software. Spreadsheet software is inexpensive and therefore the system is often configured in any way. However, spreadsheets are error-prone because the knowledge are often entered within the wrong place, incorrectly entered, or not entered in the least, leading to inaccurate financial statements. Therefore, spreadsheets are typically used only in organizations with very low transaction volumes.

2. Commercial software

Commercial off-the-shelf (COTS) software is that the leading accounting software used round the world. it's reasonably configurable for your business needs, contains multiple layers of error detection to stop misinformation entry, and typically produces standard reports which will be configured for your needs. There are COTS packages that are specific to a specific industry and have additional features to satisfy the requirements of the target market. COTS software may require the services of a consultant to put in and should require a lengthy installation process also as onsite staff to take care of the software. A variation of this idea is accounting software available as a web service, which needs users to log in to the vendor's site to access the software. The latter approach requires you to pay a monthly fee for every user instead of pre-purchasing the software.

3. Enterprise Resource Planning Software (ERP)

ERP software consolidates information from all parts of your business into one database. This approach eliminates the issues related to using independent department-specific software that doesn't share information. However, it's very expensive and may take a year or more to put in. This software is typically only needed within the largest and most complex organizations.

4. Custom accounting software

This software is custom developed for your organization. This approach is typically only taken when the requirements of the entity are very specific and can't be met by the COTS or ERP package. However, custom software is buggy and requires more maintenance than off-the-shelf packages, so this approach is never adopted.

Q11) What are the various benefits of using online software tailored specifically for little businesses?

A11) The various benefits of using online software tailored specifically for little businesses are:

1. Saving time, money and expenses with accounting software

This is one among the simplest things about using accounting software to drive your business operations. the very fact that you simply can automate some, if not all, accounting tasks are often very helpful.

For example, consider paying an invoice. Most folks automatically pay your phone and internet bills monthly, except for businesses, you add a monthly fee. Also, if you pay manually, you're wasting tons of the time you'll have spent somewhere good.

By using Invoice Berry to trace your expenses, you'll basically track your expenses on the pass category. this suggests you'll create reports to ascertain where and the way you spend most of your money. Of course, this is often all done automatically.

2. Convenience of accounting software

This is directly linked to the above. Today, convenience is everything.

Ideally, the simplest sort of accounting software is straightforward and straightforward to line up. When a corporation decides on software, it are often distracted by the flashy features that it's going to need just just in case and pay quite it must.

On the opposite hand, if your small business needs software to process invoices, you would like something that's quick and straightforward to line up.

Invoice Berry is meant with accessibility in mind for both you and your clients. All the tools you would like are online, which may prevent tons of billing time. It doesn't waste time downloading and fixing unwanted software, so it's easily accessible to both parties.

Accounting Convenience-Software

The name of the sport here is User Experience.

Invoicing are going to be easier than ever when everything is already available online.

3. Customize

Customization is another important a part of accounting software.

Because, actually, your operational activities are unique to you and you. Sure, you would possibly find someone within the same industry who is more or less doing an equivalent number – but your income is exclusive to you.

Do you know where I'm going with this?

Customization is vital because it tailors your accounting needs specifically to your company. Not the opposite way around.

By customizing your invoice, you'll give life and personality to your business. With Invoice Berry's invoice template, you'll add logos, specific terms of use, payment methods and more to form your invoice really yours.

With this feature, you'll send professional yet crisp invoices, bespoke up to T, designed to satisfy all of your needs.

4. Tracking is simpler

One of the foremost important financial goals for a corporation is tracking and analysis.

However, it is often difficult to succeed in that goal without managing your invoices. you ought to always closely monitor your income and invoices to seek out areas for improvement.

For example, are invoices paid on time? Is there how to hurry up the process? the way to bear with late clients?

Accounting-Software-Tracking-Data

Data and analytics are an excellent thanks to determine if your business is occupation the proper direction.

Fortunately, you'll use Invoice Berry to simply track your expenses and invoices and save them for later reference. With Invoice Berry, it can take up to 60 seconds to line up your online invoice. 60 seconds to pay with regular payments with holding clients.

5. Tax assistance

Tax accounting can always look complicated, especially for SMBs. After all, there are numerous sorts of taxes that it is often difficult to trace them.

Fortunately for you, this is often where accounting software can prevent many sleepless nights. When subsequent tax season comes, you would like to start out producing financial statements and tax summary reports.

But when this happens, you're ready. Method is as follows.

Fortunately, Invoice Berry also can assist you create invoices, with or without taxes. for instance, you'll add nuisance tax or VAT options to.

An invoice to save you the trouble of billing individually.

6. Create a business plan If you're just getting started, your business plan is everything.

It takes time to create and propose a good business plan from scratch.

But to save time, the alternative is to follow one of the many free Invoice Berry business plan templates.

Accounting-Software-Invoice Berry-Business Plan

Invoice Berry comes with a number of free templates to help you get started.

These templates are free, available in Word, Excel, and Open Office, and are designed to guide you through the process quickly and easily.

The business plan template you choose can be as simple or detailed as the one you choose, depending on your business goals and industry. Therefore, you can either follow a simple business plan structure or use a business plan checklist instead.

Once the business plan is complete, you can proceed to the business plan presentation or cash plan budget instead, depending on your current stage.

7. Multi-currency

If you are managing a remote work team, it may seem difficult at first to process invoices in different currencies. However, the problem of converting international currencies to each other is a thing of the past.

Today, most accounting software is equipped to process multi-currency invoices coming from all over the world.

With the ability to customize invoices and add payments, handling international currencies has never been easier. Invoice Berry personally handles invoices in over 200 currencies.

Put everything together

Overall, there are many benefits to using accounting software, and Invoice Berry can save you a lot of time and money based on how easy it is to set up.

Best of all, you can customize your invoices specifically as needed, or use one of many business plans and invoice templates for free.

If that sounds like something you're interested in, try Invoice Berry Billing Software for free and be aware that you can change your plan at any time.

Q12) Explain in brief list of the major steps that need to be completed to implement a new accounting software system.

A12) Here is a brief list of the major steps that need to be completed to implement a new accounting software system.

1. Implementation plan

2. Software installation

3. Accounting system configuration

4. System training

Q13) Write short note on Software installation.

A13)

Make sure your hardware and network system are properly configured to support your new accounting software. Some of today's programs also offer CRM, which may require additional hardware needs.

Load the software from the CD or download it to the appropriate computer, either standalone or on a server.

Install or tune the operating system with auxiliary software such as Microsoft Windows Server, SQL Server, Small Business Server, and IIS.

Establish a backup of your system data to protect it from hardware failures. This is followed by testing and checking to ensure that the appropriate files are backed up and the process is correct. Keep in mind that backing up SQL products is handled differently.

Setting up Terminal Services, Citrix, or Web Services is necessary in many environments today, especially if your enterprise has remote employees or multiple locations.

When loaded on a server and accessed from a PC, establish appropriate access to the server so that employees can use the system. Network security should be included in the installation of accounting software.

For multiple users:

Set a password for each user

Establish proper access for each user to specific areas, such as restricting payroll access to specific employees

Sarbanes-Oxley type security options (role-based security) are available on many systems. The setup should be concrete and Completely set up.

h. Configure the system documentation for your needs, such as:

Customer invoice

Customer statement

Pay check

Vendor check

purchase order

Estimate etc.

i. Create a custom report to provide the information in the format you need. These reports include both operational and financial areas.

j. Establish the necessary "linkages" with other software, such as importing data from e-commerce applications and time clocks. Integration with other systems depends on the individual system. Pay attention to all security, backups, and the ability to recover from a failed import.

Q14) Explain Accounting System Configuration.

A14)

Establish a company balance sheet for assets, liabilities, capital, sales, and expenses

Establish company departments, departments and cost centres as needed

Load the following actual data.

Put all customer information in accounts receivable and establish default AR information for new customers

Enter all vendor information in Accounts Payable to establish default AP information for the new vendor

Put all inventory items in inventory management and establish default IC information for new parts

Enter all employee information in the payroll and establish new employee information. Payroll must be processed very carefully, as the data in the system needs to be properly fed into quarterly payroll reports, and yearly numbers are essential for clean cuts.

d. load certain numbers to support the trial balance amounts for these accounts.

Some people need historical transactions-see implementation plans

You need to determine the integrity of the old data.

You need to run the previous and next reports to make sure that the imported data flowed correctly. It is recommended to capture information other than the master record from the data entry screen and post it if possible. This checks the integrity of the data and maintains the drilldown that is unique to most systems today.

All accounts receivable open unpaid invoices

All accounts payable open unpaid invoices

Inventory Management Manages all current inventory statistics. This includes quantity on hand, quantity ordered by customers, quantity ordered from vendors, current cost per inventory item, and more.

All individual salaries per employee for current and quarterly current and quarterly employees, including salaries, individual federal taxes, state taxes, local taxes, and withholding taxes.

e. Load certain other information to support the actual business situation at the time of conversion

Order details for all open purchase orders

Orders Details of all outstanding orders

Job cost Detailed information and cost for all open jobs

BOM "Recipe" for all BOM

Q15) What are the advantages of accounting software?

A15) These are the most advantages of why you ought to use such software to manage your business.

Simplification: Accounting systems are designed to offer aiming to numbers and perform automated calculations, putting financial management within the hands of non-accounting audiences. With little or no creative accounting training, business owners can successfully complete their accounting operations.

Cost Savings: The core of business growth, the accounting and financial systems, helps automate core computational and management procedures. It takes control of your income framework to assist you get obviate outsourcing financial management by handing it over to an outdoor expert. At an equivalent time, it reduces the value of printing and distributing documents. Store all sensitive data during a secure and monitored location.

Full financial transparency: From an accountant or auditor's point of view, the simplest thing a few good accountings is that it avoids costly and essentially recurring human error. Calculation of inaccurate totals or failure to report data in time can jeopardize business scenarios. Therefore, calculation automation is most useful.

Accurate Forecasting: one among the most benefits of accounting software is accurate forecasting. Understanding financial performance patterns and trends intimately isn't easy. It can take years to finish without a solid system. Accounting software gives aiming to numbers and helps you understand where you would like to save lots of money and where you would like to take a position more. a transparent overview of your current financial position makes it very easy to develop smart strategies and allocate resources correctly.

Productivity: Given a business owner's choice of one suite of computerize services to improve performance, the initial or the first option he chooses must definitely be accounting software. These accounting systems dig deep into the gathering, organization, and analysis of the foremost sensitive data of a company's most complex and routine tasks.

Tax Compliance: There are many of today's top accounting systems that concentrate on payroll support, reporting, and automatic law compliance. once you activate them, they become the top-level tax sources and audit information. It stores all the small print needed to take care of a transparent workflow.

Improving customer relationships: Yes, are you able to argue that accounting software has nothing to try to with how you serve your customers? But the reality is that the majority accounting systems, no matter their primary function, perform effective billing and billing, preventing all kinds of delays and misunderstandings. they're very easy to personalize on behalf of the business. Therefore, Security: Knows what financial data is that the most precious information for any company. Therefore, it must be stored safely in order that it'll not fall under the hands of a malicious person or be accidentally lost. this is often what the accounting and finance system does for patrons and clients, preventing accounting from being compromised. It keeps an additional copy just in case you would like to receive them. In most cases, you would like to create an indoor security structure to form decisions that allow you to access sensitive data. The company's performance seems to be more professional and reliable.

Q16) Discuss the disadvantages of accounting software.

A16) All have some limitations or disadvantages. There are some drawbacks to using accounting software here.

Tendency to style industry-specific accounting systems: If you select between a uniform accounting solution or an answer developed to satisfy the precise needs of your industry, you ought to choose the latter. In most of those cases, we don't believe our long-standing reputation for his or her quality. Therefore, sign up advance for all the features you would like.

Scalability and Customization: Accounting has proven to be a non-creative issue in its title, so few developers can make the digitized process more attractive. Therefore, the accounting isn't the foremost exciting and open configuration app ever used. A potentially wisest action on your behalf is to settle on a customizable accounting solution. Try implementing the principles and business specifications internally.

Lack of Integration: When checking out a solid accounting and economic system, confirm that this technique has an open infrastructure that supports third-party integration. Developers today concentrate to tools that employment with sales software, business intelligence systems, project management apps, and lots of other services, so do your best.

Q17) What is the purpose of preparing Final Accounts?

A17) The final account is the account prepared by the Joint Stock Company at the end of the fiscal year. The purpose of creating a final account is to provide a clear picture of the financial situation of the organization to its management, owners or other users of such accounting information.

Final account preparation involves preparing a set of accounts and statements at the end of the fiscal year.

Trading and profit and loss accounts

Balance sheet

Profit and loss appropriation account

Purpose of Final Account preparation

The final account is prepared for the following purposes:

To determine the profit and loss incurred by the company within a certain financial period

To determine the financial status of the company

To serve as a source of information to inform users of accounting information (owners, creditors, investors and other stakeholders) about the solvency of the company.

Trading account

The results of the purchase and sale of goods are known as the trading account. This sheet is provided to show the difference between the sales price and the cost price. It is prepared to show the trading results of the business i.e. The total profit or total loss maintained by the business. It records the direct costs of the business company.

According to J.R. Batliboi,

The trading account shows the results of buying and selling goods. When we prepare this account, the general establishment costs are not taken into account and only the transaction of goods is included."

Profit and loss accounts

This account is prepared to check the net profit/loss and fiscal year expenses of the business during the fiscal year. It records the indirect expenses of the business company like rent, salary, and advertising expenses. Profit and loss a/C includes expenses and losses and gains and losses incurred in business other than the production of goods and services.

Balance sheet

The balance statement shows the financial status of the business at a specific date. The financial status of a business is discovered by aggregating its assets and liabilities on a specific date. The excess of assets over liabilities represents the capital sunk into the business and reflects the financial health of the enterprise.

Now it is known as a statement of the financial status of the company.

Q18) What all expenses come under the head of trading A/C?

A18) Trade and manufacturing operating companies deal with the sale and purchase of goods. Therefore, only the manufacturing and trading entities prepare the trading account. Service providers do not prepare for this.

Advantages of preparing a trading account format

It is a very important statement from the point of view of the cost of goods. By preparing a trading account, an entity may take a decision to continue or discontinue a particular product, which helps to obtain maximum profit or reduce losses.

With the help of a trading account, the sales tax authority can, in accordance with the sales tax declaration filed by the business. It also helps the excise duty authorities to assess the excise duty of a business enterprise.

The management, having in mind the market competition, determines the price of the product with the help of a trading account.

Items in trading account format

The trading account contains the following details:

Details of raw materials, semi-finished goods and finished products, opening stock.

Close inventory details of raw materials, semi-finished products, and finished products.

Total purchase of goods less purchase return.

Total sales of goods less sales return.

All direct costs associated with the purchase or sale or manufacture of goods.

Item of income (Cr.Side)

Less sales return than total sales of goods

Close the stock of the product.

Expenditure item (Doctor) side

Item of expenditure (Dr.Side)

Opening stock

Total purchase of goods less purchase return

All the direct cost like carriage interior & freight cost, rent, electricity and power cost, wages for godown or factory, packing cost, etc. for workers and supervisors.

Notes

The trial count will not be displayed on the close. But, firstly, we need to show the amount of closing shares on the income side of the trading account, and secondly, on the balance sheet under current assets.

We value closing inventory at either lower cost or market price.

On the day of preparation of the trading account, we value the physically available closed shares.

However, the trading account can also be prepared in horizontal form, but the content remains the same.

Trading Account Format

Particulars	Amount	Particulars	Amount
To opening stock	xxx	By sales	xxx
To purchase	xxx	Less: Returns	xxx
Less: returns	xxx	By Closing stock	xxx
To direct expenses:	xxx	By Gross loss c/d
Freight & carriage	xxx
Custom & insurance	xxx
Wages	xxx
Gas, water & fuel	xxx
Factory expenses	xxx
Royalty on production	xxx
To Gross profit c/d	xxx

Q19) Draw the format of P/LA/C.

A19) All companies generally prepare profit and loss accounts/statements at the end of the year to gain visibility of income, revenue, expenses, and losses incurred in a certain range of periods. It is important to prepare a profit and loss statement because this information helps organizations make the right business decisions, such as where to cut costs, from where the business can generate more profit, and which parts of the business are suffering from losses.

Profit and loss accounts / statements

Types of profit and loss

Gross profit/gross loss

Profit / loss

Trading account is prepared to check gross profit/loss while profit and loss account is created to check profit and loss/net loss.

Profit and loss accounts are made to check the annual profit or loss of a business. This account only shows overhead. All items of income and expenses, whether cash or non-cash, are considered in this account.

Only revenue or expenses related to the current period are debited or credited to the profit and loss account. The profit and loss account starts with gross profit on the credit side and, if there is a total loss, appears on the debit side. Items not displayed in the profit and loss account format

Drawing: the drawing is not the company's expense. Therefore, we debit it to capital a/c, and not to profit and loss a/c.

Income tax: for a company, income tax is an expense, but for a sole proprietor, it is his personal expense. Therefore, we debit it to the capital A/C.

Discounts: as we know, discounts are of two types–trade discounts and cash discounts. We deduct the trade discount from the amount charged and therefore do not show it in the account books. On the other hand, if the customer pays the amount on a certain date, a cash discount will be possible. We view cash discounts in account books. Therefore, we debit it to the profit and loss account.

Bad debt: it is because of the customer and the amount he does not pay it. We debit this amount to profit and loss a/c in the event that preparations have already been made for a bet that is worse than it is initially written off from it. When bad loans are recovered, it is again. Now it is not credited to the account of the party, but recovered account should be credited to the bad debt and is written on the credit side of the profit and loss account

Profit and Loss Account Format

Particulars	Amount	Particulars	Amount
To Gross loss b/d	xxx	To Gross profit b/d	xxx
Management expenses:	xxx	Income:	xxx
To salaries	xxx	By Discount received	xxx
To office rent, rates, and taxes	xxx	By Commission received	xxx
To printing and stationery	xxx	Non-trading income:	xxx
To Telephone charges	xxx	By Bank interest	xxx
To Insurance	xxx	By Rent received	xxx
To Audit fees	xxx	By Dividend received	xxx
To Legal charges	xxx	By Bad debts recovered	xxx
To Electricity charges	xxx	Abnormal gains:	xxx
To Maintenance expenses	xxx	By Profit on sale of machinery	xxx
To Repairs and renewals	xxx	By Profit on sale of investments	xxx
To Depreciation	xxx	By Net Loss(transferred to Capital A/c)	xxx
Selling distribution expenses:
To Salaries	xxx
To Advertisement	xxx
To Godown	xxx
To Carriage outward	xxx
To Bad debts	xxx
To Provision for bad debts	xxx
To Selling commission	xxx
Financial expenses:
To Bank charges	xxx
To Interest on loan	xxx
To Discount allowed	xxx
Abnormal losses:	xxx
To Loss on sale of machinery	xxx
To Loss on sale of investments	xxx
To Loss by fire	xxx
To Net Profit(transferred to capital a/c)	xxx
TOTAL		TOTAL

Q20) Explain any six types of adjustment in final Account.

A20) Types of adjustment entry for the final account

Closing stocks:

The value of the closing stock is checked at the end of the fiscal year, so it is displayed as an adjustment. It must be credited to the transaction a/c and displayed on the asset side of b/S.

The adjustment entry is:

Closing stock a/c ------ Dr.

To trade A / c

DR Trading account and balance sheet CR

Rs
	By Sales
	By Trading Stock

Balance sheet

Liabilities	Rs	Assets	Rs
		Closing Stock

2. Unpaid expenses:

These are expenses incurred in the fiscal year, but no payments have been made. Any unpaid or unpaid expenses will be added to such expense a/c in P&L a/c and will be displayed as current liability in b/S.

For example, monthly rent in May 2002 Rs. 1,000 remains unpaid. A calendar year is an accounting year.

Adjusting entries:

Rent account Dr. Rs.1000

To Outstanding Rent a/c Rs. 1,000

Dr. Profit and loss accounts Cr.

Particulars	Amount	Particulars	Amount
TO Rent Account Add: Outstanding	[11 month rent] [December]	11,000 1,000	12,000

Balance sheet

Liabilities	Rs	Assets
Outstanding Expenses: Rent	1,000

3. Prepaid Expenses

These are the costs paid, but part of the amount paid extends to the next year. It is also called" expiring expenses". The prepaid amount paid should be deducted from such expenses and displayed as current assets in the B/S.

For example, Rs premium a total of 2,400 people were paid on July 1, 2002. A calendar year is an accounting year. The annual premium is paid for 1 month, so the 6-month premium concerns half of the current year and the other half the following year.

Hence Rs. 1,200 must be treated as an upfront payment, deducted from the premium paid and displayed as an asset on b/S.

Adjusting entries:

Prepaid insurance a / c Dr Rs. 1, 200

To Premium A / c Rs. 1, 200

Profit and Loss Account

Particulars	Amount	Amount	Particulars	Amount
To Insurance Premium a/c Less: Prepaid insurance	2,400 1,200	1,200

Balance Sheet

Liabilities	Rs	Assets	Rs
		Prepaid Insurance	1,200

4. Accrued income:

It is an income that has already been earned [i.e. the service has already been rendered], but no money has been received. For example, interest on investments accrued Rs. 1,200.

Interest in the current year is due to the end of the year. That amount can actually be received in the next year. Currently, it represents income, which has become accounts receivable or accrued. Therefore, P&L is credited to a/c, IS accounts receivable and appears as an asset in b/S.

Adjusting entries:

Accrued interest a / c Dr. Rs. 1,200

To be interested in a / c Rs. 1,200

Profit and Loss Account

By Interest on investment

Add: Interest accrued

……

1,200

Balance Sheet

Liabilities	Rs	Assets	Rs
		Interest accrued	1,200

5. Income received in advance:

These are the income received during the current year, but part of the amount received is related to the following year. Such amounts must be deducted from the total amount received in P & L A / C and displayed on the debt side of B / S, which represents the amount that the business is obliged to return.

For example, business concerns have received a three-year apprenticeship premium equivalent to Rs.6, 000. Rs in this amount.2, 000 IE, 1/3 of Rs.6, 000 is for the current year and must be credited to P&L a/c as income. And balance Rs. As business is obliged to return 4, 000 represents responsibility.

Adjusting entries:

Apprentice premium A / c Dr Rs. 4000

To Apprentice premium received in advance Rs. 4000

Profit and Loss Account

		Rs	Rs
	By Apprentice Premium Less: Received in advance	6,000 4,000	2,000

Balance Sheet

Liabilities	Rs	Assets	Rs
Apprentice Premium received in advance	4,500

6. Depreciation of assets:

Depreciation implies a decrease or decrease in the value of an asset due to its constant use. It may also occur due to wear and tear, the passage of time and obsolescence. It's a loss to business.

It is usually calculated at a certain percentage to the value of the asset, and so the amount obtained is shown first on the debit side of the P & L A/C, and then subtracted from the original value of the asset of B/s.

For example, a business has furniture worth Rs. At the end of the year 50, 000 it is depreciated by 5%.

Adjusting entries:

Depreciation A / c Dr Rs. 2,500

To Furniture A / c to Rs. 2,500

[5% Rs 50,000 = 2,500]

Profit and Loss Account

Particulars	Amount	Particulars	Amount
To Depreciation a/c Furniture	2,500

Balance Sheet

Liabilities	Rs	Assets		Rs
		Furniture Less: Depreciation	50,000 2,500	47,500

Q21) Show the adjustments of Bad Debts in Final A/C.

A21) Debt represents money from the debtor [i.e., the uncollected portion of the credit sale]. When a debt becomes irretrievable, it becomes a bad debt and is treated as a loss. The amount of non-performing loans is debited to P&L a/c and deducted from the various debtors of B/S.

For example, a trader's ledger balance on sundry debtors shows Rs with 20,000. 1,000 are estimated to be unrecoverable.

Adjusting entries:

Bad debts a / c Dr Rs. 1,000

To Sundry debtor a / c to Rs. 1,000

a) Provision for bad and doubtful debt:

Every business has a lot of trading through margin trading. This gives rise to a significant amount of book debts or debtors. But 100% of these debts are rarely recovered.

Therefore, it would be necessary to bring down the balance of the debtor to it true position. The usual practice is to calculate such a bad debt at a certain rate, based on the past experience of the debtor. It is called reserves or reserves for doubtful debts.

However, the allowance for bad loans and bad debt is calculated on good debt, that is, after deducting previously unadjusted bad loans.

For example:

At the end of the year the sundries debtors of traders stood in the Rs.21, 000. It is estimated to be Rs. 1,000 is written off as bad loans and a 5% allowance is created for bad debt.

Adjusting entries:

Bad Debts a/c Dr. Rs. 1,000

To Sundry Debtors a/c Rs. 1,000

To Profit and Loss a/c Dr. Rs. 2,000

To Bad Debts a/c Rs. 1,000

To Provision for Doubtful Debts 1,000

Profit and Loss Account

	Rs
TO Bad Debts To Reserve for doubtful Debts	1,000 1,000

If there is an old provision for doubtful debts, it should be adjusted [deducted] against the new provision.

Balance Sheet

Liabilities	Rs	Assets	Rs
		Sundry Debtors Less: Bad Debts Less: Provision for Doubtful Debts	21,000 1,000	19,000
			20,000
			1,000

b) Provision for discounts to debtors:

Cash discounts are allowed to debtors to prompt quick payments. After providing bad loans and bad debts, the debtor's balance represents the debt from a healthy party.

They may pay their dues on time and try to take advantage of the acceptable cash discounts themselves. Therefore, this discount should be expected and offered. It is, therefore, the usual practice in business is to offer debtors discounts at a certain percentage on good debt.

For example:

Suppose a trader has various debtors equivalent to rs.20, 000 and he estimates that a provision for a discount of 5% is desirable, after a provision of 2% for bad debts. Then about healthy debt, i e a provision of 19,000 at 2% has been made as a reserve for debtors ' discounts.

Adjusting entries:

Profit and Loss a/c Dr. Rs.380

To Reserve for Discount on Debtors a/c Rs.380

Profit and Loss Account

	Rs
To ad Debts To Reserve for Doubtful Debts To Reserve for Discount on Debtors	1,000 380

Balance Sheet

Liabilities	Rs	Assets		Rs
		Sundry Debtors Less: Provision for Doubtful on Debts Less: Provision for Doubtful Debts	20,000 1,000 19,000 380	18,620

Q22) How are books maintained in electronic mode?

A22) Maintenance of books in electronic mode

The second note to Section 128 of the CA, 2013, allows the company to store such account books or other relevant papers in electronic mode in a prescribed manner Rule 3 of the company (account) rules stipulates the way accounts are held in electronic mode in 2014.

According to the rules:

Account books and other related books and papers maintained in electronic mode will remain accessible in India for further reference.

the account books and other related books and papers contained in sub-rule(1) shall be fully retained in the form originally generated, transmitted or received, or in a form that accurately presents the information generated, transmitted or received, and the information contained in the electronic records shall be complete and unaltered.

The information received from the branch must be kept in a manner that does not change and indicates the information received from the branch

Information in electronic records of documents may be displayed in an easy-to-read format.

if an appropriate system exists as the Audit Committee for the storage, retrieval, display or printing of electronic records, or as the board of Directors deems appropriate, such records shall be disposed of or unavailable unless permitted by law.

The company must be faithful with the registrar on an annual basis at the time of submission of financial statements:

(a) Name of the service provider;

(B) Internet Protocol address service provider;

In 1956, there was no specific provision for the maintenance of electronic mode books. However, in the Registrar of the enterprise there were provisions for the submission of electronic records containing financial statements in electronic mode. Section 610E provided that all provisions of the Information Technology Act 2000 on electronic records, including the manner and form in which electronic records are filed, apply or relate to electronic records under Section 610B, unless they are inconsistent with this law.

Q23) Define Form and content of financial statements

A23) Form and content of financial statements

Section 129 of the CA (1), 2013 requires that the financial statements of the Company shall be

a true and fair understanding of the company's situation;,

Obeying with the rules of accounting standards notified under Section 133;

a form or form provided to a company of a different class or class of Schedule III;

This subsection shall not apply to insurance companies or banking companies or companies engaged in generating or supplying electricity, or to any other class of companies whose forms of financial statements are specified in or under the law governing such class of companies.

Section subsection(5)129 further provides that, if the company's financial statements do not comply with the accounting standards set out in Subsection (1), without compromising the subsection-

In Paragraph (1), the Company shall disclose any deviations from financial statements, accounting standards, the reasons for such deviations, and any financial impact arising from such deviations.

Subsection (6) Section 129 prohibits the class from complying with the requirements of any of the rules made in this section or on its basis if the central government believes it is necessary to grant such exemptions in the public interest, on its own or by notice, for applications by the class or class of companies. Such exemption may be unconditionally or subject to the conditions specified in the notice.

A similar provision was in CA, 1956. Section 211 (1) all the company's balance sheets shall be true and fair to the company's situation at the end of the fiscal year, and in accordance with the provisions of this section, shall be in the form set forth in part I of Schedule VI, or in any form in which circumstances close to it are permitted, or in any other form that may be approved by the central government in general or in particular cases. if you do not agree to the terms of this agreement, you will be bound by the terms of this agreement. And in the preparation of the balance sheet must have, as far as possible, in the general instructions for the preparation of the balance sheet under the heading "notes" at the end of that part. :

Subsection (2) all profit and loss accounts of the Company shall give a true and fair view of the company's profit and loss for the fiscal year and, as mentioned above, shall be included in Part II of Schedule VI.

Nothing contained in this sub sections (1) and (2)does not apply to insurance companies or banking companies or companies engaged in generating or supplying electricity, or to companies of any other class whose forms of balance sheet and profit and loss accounts are set forth in the laws governing such classes of companies.

Subsection (3) the central government authorized to exempt any class of companies that comply with any of the requirements of Schedule VI, if it is deemed necessary to grant an exemption for the public interest, unconditionally or in accordance with the conditions specified in the notice by the Official Gazette.

Subsection (3A) mandated that all of the company's profit and loss accounts and balance sheets comply with accounting standards, and that if the company's profit and loss accounts and balance sheets do not comply with accounting standards, the company would disclose in its profit and loss accounts and balance sheets any deviations from accounting standards, the reasons for such deviations and any financial effects resulting from such deviations.

Subsection (4) the central government, with the consent of the board of Directors of the company, has authorized, by order, any of the requirements of this law to change in relation to the company in relation to the matters listed on the balance sheet or profit and loss account of the company for the purpose of adapting to the situation of the company.

Accounting standards

Section 129, 2013 of the CA requires that financial statements comply with accounting standards notified under Section 133 and Section 133 stipulates that the central government may prescribe accounting standards or an addendum to it, recommended by the Association of CPAs of India, after consultation with and consideration of recommendations made by the National Financial Reporting body.

Article 7 of the Company (Accounting Standards) Regulation (2014) stipulates that, as a transition provision, the accounting standards under the Company Act 1956 (i.e., the Company (Accounting Standards) Regulation, 2006) shall be considered as accounting standards until established by the central government under Article 133.

Similar provisions were provided in subsections of sections (3A), (3B) and (3C) 211, 1956 of CA.

Q24) What is the Format of financial statements?

A24) Format of financial statements

Section 129, 2013 of the CA requires that financial statements must be in a form or form that is provided to companies of different classes or classes of Schedule III.

Schedule III to the CA, 2013 provides that the disclosure requirements set out in this schedule are not replaced, in addition to the disclosure requirements set out in the accounting standards set out in the Companies Act, 2013. The additional disclosures specified in the accounting standard shall be made by a note to the account or an additional statement unless it is required to be disclosed on the surface of the financial statements. Similarly, all other disclosures required by the Companies Act shall be described in the account notes in addition to the requirements set out in this schedule. Such provisions were also found in Section 211 of the Companies Act and in Schedule VI, 1956.

However, Schedule III of the Companies Act 2013 also includes general instructions for the preparation of consolidated financial statements, and where the preparation of consolidated financial statements, i.e., consolidated balance sheets and consolidated income statements, is required, the Company shall comply with the requirements of this schedule that apply to the company in the preparation of the balance sheet and income statement. The consolidated financial statements shall also disclose information in accordance with the requirements set forth in the applicable accounting standards. It is also necessary to disclose certain additional information in the consolidated financial statements.

Section of Section(3)of the CA Section 129,2013 in addition to the financial statements it is provided on the basis of subsection(2)if the company has one or more subsidiaries, another statement containing in such a form that the salient features of the financial statements of its subsidiaries or subsidiaries may be prescribed. The central government may provide consolidation of the company's accounts by the prescribed method. Subsection description stipulates that for the purposes of this subsection, the word "Subsidiary" shall include quasi-company and joint venture.

Sub section (4)Section 129 applies to the preparation, adoption and audit of the financial statements of the holding company the provisions of this law stipulate that mutatis mutandis shall apply to the consolidated financial statements described in Subsection (3).

Rule 5, 2014 of the company (accounting) rules shall be in the form of a statement containing prominent features of the financial statements of subsidiaries or subsidiaries, affiliates or companies and joint ventures or ventures of the company under the first provision of Paragraph 3 of paragraph 129 of the Aoc-1.

Rule 6 stipulates the method of consolidation of accounting; it requires that the consolidation of the financial statements of the company must be carried out in accordance with the provisions of Schedule III of the law and the applicable accounting standards.

In 1956, there was no such provision in CA, which mandated the compulsory consolidation of financial statements by companies with subsidiaries.

However, Section 212 required a balance sheet of the holding company that contains certain matters relating to its subsidiaries and a sheet of the holding company for attachment to the balance sheet of the holding company

a) copy of the subsidiary's balance sheet,

b) Another set of the profit and loss account,

c) a copy of the board's report,

d) a copy of the auditor's report and

e) A statement of the interests of the holding company to the subsidiaries specified in Sub section(3).

However, subsection (2) (A), where it had subsidiaries, affiliates and joint ventures, was required to produce the balance sheet, income statement, auditor report and director report of the subsidiary in accordance with the requirements of CA, 2013. What is worth mentioning here is that CA, 2013 includes the definitions of "subsidiary" and "affiliate".

Q25) How to prepare financial statements?

A25) The preparation of monetary statements involves the method of aggregating accounting information into a uniform financial set. The completed financial statements are distributed to management, lenders, creditors and investors who use them to assess the performance, liquidity, and cash flow of the business.

Step 1: confirm receipt of vendor invoices

Compare and receive logs payable to all suppliers that may be charged. Comparing Accounts for expenses on invoices that have not been received.

Step 2: confirm the issue of customer invoices

Compare the shipment log to accounts receivable to ensure that all customer invoices have been issued. Issue an invoice that has not yet been prepared.

Step 3: generate unpaid wages

Accrues expenses for wages earned at the end of the reporting period, but not yet paid.

Step 4: calculate depreciation

To calculate depreciation and amortization for all fixed assets in accounting records.

Step 5: value stock

Perform a field inventory count to close, or use an alternative method to estimate the closing inventory balance. Use this information to derive the cost of the goods sold and record their amounts in accounting records.

Step 6: adjust your bank account

Perform bank adjustments, create journal entries, and record all the adjustments required to match accounting records to bank statements.

Step 7: post the account balance

Post all sub ledger balances to the general ledger.

Step 8: verify your account

Review the balance table account and use journal entries to adjust the account balance to match the corresponding details.

Step 9: check your finances

Print preliminary versions of financial statements and check them for errors. Repeat until all errors are corrected.

Step 10: generating income tax

Based on the corrected income statement, you will accrue income tax expenses.

Step 11: close the account

Close all sub ledgers for that period and open during the next reporting period.

Step I2: issue financial statements

Print the final version of the financial statement. Based on this information, write a footnote that accompanies the statement. Finally, prepare a cover letter explaining the key points of the financial statements. This information is then assembled into packets and distributed to a standard list of recipients.

Financial statements are the way companies tell their stories. Thanks to GAAP, there are four basic financial statements that everyone needs to prepare.

Q26) What are the Basic accounting assumptions?

A26) Basic accounting assumptions

Certain assumptions are utilized in the preparation of monetary statements. They are usually not particularly indicated because they are supposed to be abided. Disclosure is only necessary if they are not followed.

The following are generally accepted as basic accounting assumptions:

Ongoing concern

Organizations are usually considered to be of continuous concern, that is, to be in continuous operation in the near future. It is assumed that the organization has no intention, no need to stop operations or scale down.

Consistency

It is assumed that the accounting policy follows consistently from one period to another. Frequent changes are not expected.

Axial

Revenues and expenses are recorded when they are earned or incurred in the relevant period (not when money is received or paid).

Nature of accounting policy

Accounting policy refers to the method of applying these principles adopted by the organization in the preparation of accounting principles and financial statements.

There is no single list of accounting policies that apply in all situations. The different circumstances in which the organization operates make alternative accounting principles acceptable. The choice of the right accounting principles calls for a greater degree of judgment by the management of the organization.

The various standards of the Association of Certified Public Accountants of India, combined with the efforts of the government and other regulatory bodies, reduce the number of acceptable alternatives in recent years, especially in the case of legal entities, the continued efforts in this regard in the future may further reduce the number, but the availability of alternative accounting principles is not likely to be completely eliminated, with the different situations faced by the organization in mind.

Q27) From the following ledger balance presented by Sen. on 31st March, 2016 prepare a trading account:

Particulars	Rs	Particulars	Rs
Stock (1-4-2015) Purchase Wages Carriage inwards Freight inward	10,000 1,60,000 30,000 10,000 8,000	Sales Returns inward Return outward Gas and Fuel	3,00,000 16,000 10,000 8,000

Other information:

Closing value of stock for 31st March, 2016. 20,000

Unpaid wages reached Rs. 4,000

Gas and fuel were paid in advance for Rs. 1,000

A27)

Trading account for the year ended 31st March, 2016

Dr Cr

Particulars	Rs	RS	Particulars	Rs	Rs
To Opening Stock To purchase Less: Return outwards To wages Add: Outstanding To carriage inwards To freight inwards To Gas and fuel Less: Prepaid To Gross profit c/d	1,60,000 10,000	10,000 1,50,000 34,000 10,000 8,000 7,000 85,000	By Sales Less: Returns inward BY Closing Stock	30,00,000 16,000	2.84,000 20,000

	30,000 4,000
	8,000 1,000

					3,04,00
		3,04,00

Q28) From the following details presented by Thilak for the year 31st March, 2017, we will prepare a profit and loss account.

Particulars	Rs	Particulars	Rs
Gross profit Rent paid Salaries Commissions (Cr.) Discount received Insurance Premium paid	1,00,000 22,000 10,000 12,000 2,000 8,000	Interest received Bad debts Provisions for bad debts(1-4-2016) Sundry debtors Buildings	6,000 2,000 4,000 40,000 80,000

Adjustment:

The unpaid salary reached Rs. 4,000

The rent was paid for 11 months

Interest expense reached Rs but was not received. 2,000.

Prepaid insurance has reached Rs. 2,000

Depreciating buildings by 10%

Further bad debts reached Rs. over 3,000 of 5%、

The fee received in advance reached Rs. 2,000

A28)

Profit and Loss Account for the year ended 31st March, 2017

Dr. Cr.

Particulars	Rs	RS	Particulars	Rs	Rs
To Rent Add: Outstanding (22,000x1/11) To Salaries Add: Outstanding To Insurance premium Less: Prepaid insurance To Provision for bad and doubtful debts(closing) Add: Bad debts Add: Further bad debts Less: Opening provisions for bad and doubtful debts To Depreciate on building (80,000 x 10%) To Net profit (transferred to capital A/c)	22,000 2,000	24,000 14,000 6,000 2,900 8,000	By Gross profit b/d By Commission Less: Received in advance By Discount received By interest received Add: Accrued	- 12,000 2,000	1,00,000 10,000 2,000 8,000
	10,000 4,000			6,000 2,000
	8,000 2,000
	1,900 2,000 3,000
	6,900 4,000

		65,100
		1,20,000
					1,20,000

Working notes:

Debtors: 40,000

Less: further bad loans: 2,000: 38,000

Allowance for bad and bad debt of 5%: 38,000x5 % =Rs. 1,900

Q13. As of 31st December, 2017, from the balance below, prepare a profit and loss account.

Particulars	Rs	Particulars	Rs
Gross profit Salaries Office rent paid Advertisement	50,000 18,000 12,000 8,000	Rent received Discount received Carriage outwards Fire insurance premium	2,000 3,000 2,500 6,500

Adjustment:

Rent accrued, but not yet received Rs. 500

Fire insurance premiums are prepaid in the range of Rs. 1,500

Offer the manager's Commission at 10% of the profit before meeting such a commission.

Dr. Cr.

Particulars	Rs	RS	Particulars	Rs	Rs
To Salaries To Office rent To Advertisement To Carriage outwards To Fire insurance premium Less: Prepaid To Manager’s commission To Net profit (transferred to capital account)	6,500 1,500	18,000 12,000 8,000 2,500 5,000 1,000 9,000	By Gross profit b/d By Rent received Add: Rent accrued By Discount received	2,000 500	50,000 2,500 3,000 55,500

		55,500

Profit and Loss Account for the year ended 31st December, 2017

Dr. Cr.

Particulars	Rs	Rs	Particulars	Rs	Rs
To Salaries To Office Rent To Advertisement To Carriage outwards To Fire insurance premium Less: Prepaid TO Manager’s commission To Net profit (transferred to capital account)	6,500 1,500	18,000 12,000 8,000 2,500 5,000 1,000 9,000 55,500	By Gross profit/d By Rent received Add: Rent accrued By Discount received	2,000 500	50,000 2,500 3,000 55,500

Working notes:

Manager’s Commission= Net profit before charging commission x Rate of Commission/100

Net profit = 55,500 – (18,000 + 12,000 + 8,000 + 2,500 + 5,000) = Rs. 10,000

Manager’s commission = 10,000x 10/100 = 1,000

Q29) Prepare a trading and profit and loss account from the following balances obtained from Siva books:

Particulars	Rs	Particulars	Rs
Stock on 01.01.2016 Purchase Sales Expenses on purchase Bank charges paid	9,000 22,000 42,000 1,500 3,500	Bad debts Sundry expenses Discount allowed Expenses on sale Repairs on office furniture	1,200 1,800 1,700 1,000 600

Adjustment:

Closing value of the stock on 31st December, 2016 Rs 4,500

The manager is entitled to receive a commission@5% of the net profit after providing such a commission.

A29)

Dr. Trading and Profit and Loss Account for the year 31st December, 2016 Cr.

Particulars	Rs.	Particulars	Rs
To Opening stock To Purchase To Expense’s on purchase To Gross profit c/d To Bank charges To Bad debts To Sundry expenses To Discount allowed TO Expense on sale To Repairs on office furniture TO Manager’s commission To Net profit (transferred to capital A/c)	9,000 22,000 1,500 14,000	By Sales By Closing stock By Gross profit b/d	42,000 4,500
	46,500		46,500
	3,500 1,200 1,800 1,700 1,000 600 200 4,000		14,000
	14,000		14,000

Working Note:

Commission = Net profit before charging commissions x Rate of commissions/(100+ Rate of commissions) x 100

Net profit = 14,000 – (3,500 + 1,000+1,200+1,800+1,700+600) = Rs 4,200

Manager’s commission = 4,200 x 5/105 = Rs 200

Q30) From the following details, we have prepared Madhu's balance sheet and finished 31st March, 2018. During the final account creation, the following adjustments were made:

Particulars	Rs	Particulars	Rs
Capital Drawings Cash in hand Loan from Bank Bank over draft Investment Bills receivables	2,00,000 40,000 15,000 40,000 20,000 20,000 10,000	Sundry creditors Bill payable Goodwill Sundry debtor Land and Building Vehicles Cash at bank	40,000 20,000 60,000 80,000 50,000 80,000 25,000

Unpaid debt: salary Rs. 10,000; pay Rupees. 20,000; interest on bank overdraft Rs. Bank loan Rs 3,000 and interest. 6,000

Provide interest on capital@10%p.a.

Bad debts reached Rs. Make provisions for bad debts of 10,000 and @10% to sundry debtors.

Closing stock reached Rs. 1,20,000

Provide depreciation on car @10%p.a.

Net profit for the year reached Rs. 96,000 after considering all the above adjustments.

A30)

In the book of Madhu

Balance Sheet as on 31st March, 2018

Particulars	Rs	Rs	Particulars	Rs	Rs
Capital Add: Net profit Add: Interest on capital Less: Drawings Loan from bank Add: Interest outstanding Bills payable Sundry creditors Bank overdraft Add: Interest outstanding Outstanding liabilities Salaries Wages	2,00,000 96,000 20,000	2,76,000 46,000 20,000 40,000 23,000 30,000	Good will Land and Building Vehicles Less: Depreciation Investment Stock in trade Sundry debtors Less: Bad debts Less: Provision for bad and doubtful debts Bills receivable Cash at bank Cash in hand	80,000 8,000	60,000 50,000 72,000 20,000 1,20,000 63,000 10,000 25,000 15,000
	3,16,000 40,000
				80,000 10,000
	40,000 6,000
	20,000 3,000			70,000 7,000
	10,000 20,000
		4,35,000
					4,35,000

Q31) The following balance was extracted from Thomas's book as of 31st March, 2018 additional information:

Particular	Rs	Particular	Rs
Purchase Return inward Opening stock Freight inwards Wages Investments Bank Charges Land Machinery Buildings Cash at bank Cash in hand	75,000 2,000 10,000 4,000 2,000 10,000 1,000 30,000 30,000 25,000 18,000 4,000 2,11,000	Capital Creditors Sales Return outwards	60,000 30,000 1,20,000 1,000 2,11,000

Close the stock by Rs. 9,000

Provide depreciation@10% on machinery

Interest accrued on the investment Rs. 2,000

Prepare a trading account, a profit and loss account and a balance sheet.

A31)

In the book of Thomas

Trading and Profit and Loss Account for the year ended 31st March, 2018

Dr. Cr.

Particulars	RS	Rs	Particulars	Rs	Rs
To Opening stock TO Purchase Less: Return outward To Freight inwards To wages To Gross profit c/d To Depreciation on machinery To Bank charges To Net profit (transferred to a/c)	75,000 1,000	10,000 74,000 4,000 2,000 37,000	By Sales Less: Return inward By Closing stock By Gross profit b/d BY Accrued interest on investment	1,20,000 2,000	1,18,000 9,000


		1,27,000			1,27,000
		3,000 1,000 35,000			37,000 2,000
					39,000
		39,000

Balance Sheet as on 31st March, 2018

Particulars	RS	Rs	Particulars	Rs	Rs
Capital Add: Net profit Creditors	60,000 35,000	95,000 30,000	Land Building Machinery Less Depreciation Investment Add: Accrued interest Stock in trade Cash at bank Cash in hand	30,000 3,000	30,000 25,000 27,000 12,000 9,000 18,000 4,000
				10,000 2,000

Q32) Below is a balance extracted from Nagarajan's book as of 31st March, 2016.

Particulars	Rs	Particulars	Rs
Purchase Wages Freight inwards Advertisement Carriage outwards Cash Machinery Debtors Bills receivable Stock on 1st January, 2016	10,000 600 750 500 400 1,200 8000 2,250 300 1,000 25,000	Sales Commission received Rent received Creditors Capital	15,100 1,900 600 2,400 5,000 25,000

After adjusting for the following, we will prepare trading and profit and loss accounts for the year ending 31st March, 2016 and balance sheet as of that date:

Fees received Rs in advance. 400

Ads paid Rs in advance. 150

Unpaid wages Rs. 200

Stock at the end was Rs. 2,100

A32)

In the book of Nagrajan

Trading and Profit and Loss Account for the year ended 31st March, 2016

Dr. Cr.

Particulars	Rs	Rs	Particulars	Rs	Rs
To Opening stock To Purchase TO Wages Add: Outstanding To Freight inwards To Gross profit c/d TO Advertisement Less: Prepaid advertisement To Carriage outwards TO Net profit (transferred to capital a/c)	600 200	1,000 10,000 800 750 4,650	By Sales By Closing stock By Gross profit b/d By Commission received Less: Received in advance By Rent received	1,900 400	15,100 2,100
	500 150
		17,200			17,200 4,650
		350 400 6,000			1,500 600


		6,750			6,750

Q33) Consider the following balance extracted from Jain's book, as of 31st December, 2016. Prepare the final account.

Capital

Debtors

Creditors

Purchase

Sales

Income tax of Jain paid

Opening stock

20,000

8,000

10,500

60,00

80,000

500

12,000

Offices Salaries

Establishment expenses

Selling expense

Furniture

Cash at bank

Miscellaneous receipt

Drawings

6,600

4,500

2,300

10,000

2,400

600

4,800

Adjustment

Unpaid salaries for January, 2016 amounted to Rs. 600

Furniture depreciate by 10% p.a.

5% p.a on interest on capital

Stock for 31st December, 2016 Rs 14,000

A33)

In the book of Jain

Dr. Trading and profit and Loss Account for the year ended 31st Dec,2016 Cr.

Particular	Rs	Rs	Particular	Rs	Rs
To Opening Stock To Purchase To Gross Profit c/d To Office salaries Add: Outstanding To Establish expenses To Selling expenses To Depreciation on furniture (10,000 x 10%) To interest on capital (20,000 x 5%) To Net profit (transferred to capital a/c)	6,600 600	12,000 60,000 22,000	By sales By closing stock By Gross Profit b/d By miscellaneous receipt		80,000 4,000
		94,000			94,000
		72,00 4,500 2,300 1,000 1000 6,600			22,000 600

		22,600			22,600

Balance Sheet as on 31st December, 2016

Liabilities	Rs	Rs	Assets	Rs	Rs
Capital Add: Net profit Add: Interest on capital Less: Drawings 4,800 Income tax 500 Creditors Office salaries outstanding	20,000 6,600 1,100 27,600 5,300	22,300 10,500 600	Furniture Less: Depreciation Stock in trade Debtors Cash at bank	10,000 1,000	9,000 14,000 8,000 2,400


		33,400

Q34) Edward's books include: We will prepare his trading and profit and loss a/c for the year to 31st December, 2016 and ended the balance sheet for the day.

Debit balances	Rs	Credit balances	Rs
Drawings Sundry debtors Coal, gas and water Return inward Purchase Stock on 1-11-2016 Travelling expenses Interest on loan paid Petty cash Repairs Investment	5,000 60,000 10,500 2,500 2,56,500 89,700 51,250 300 710 4,090 70,000	Capital Loan at 6% p.a. Sales Interest on investment Sundry creditors	1,31,500 20,000 3,56,500 2,550 40,000
	5,50,550		5,50,550

Adjustment:

The closing price of stock was Rs. 1, 30,000 on 31th December, 2016.

Create a 5% allowance for bad debt and bad debt to sundries debtor

Create a provision at 2% for debtors discount

Interest on the loan is postponed for 9 months.

A34)

In the books of Edward

Dr. Trading and Profit and Loss Account for the year ended 31st Dec, 2016 Cr.

Particulars	₹	₹	Particulars	₹	₹
To opening stock To purchase To Coal, gas and water To Gross profit c/d To travelling expenses To interest on loan paid (Add: Interest Outstanding 20,000/6 x 9/12) To Repair To Provide Provision for bad and doubtful debts To Provision for Discount on debtors Net Profit (transferred to capital a/c)	300 900	89,000 2,56,500 10,500 1,27,300	By sales Less: Returns inward By Closing stock By Gross profit b/d By Interest on Investment	3,56,00 2,500	3,54,500 1,30,000

					4,84,000
		4,84,000
		51,250 1,200 4,090 3,000 1,140 69,170			1,23,300 2,550
		1,29,850			1,29,850

Balance Sheet as on 31st December, 2016

Liabilities	₹	₹	Assets	₹	₹
Capital Add: Net profit Less: Drawings 6% Loan Add interest outstanding Sundry creditors	1,31,500 69,170 2,00,000 5,000 20,000 900	1,95,670 20,900 40,000	Investments Stock in trade Sundry debtors Less: Provision for bad and doubtful debts( 60,000* 5/100) Less: Provision for discount on debtors (57,000*2/100) Pretty cash	60,000 3,000 57,000 1,140	70,000 1,30,000 55,860 710
					2,56,570

Q35) Suri is having his Head office at Mumbai and Branch Office at Nasik. Prepare the branch Account in the books of the Head Office from the following transaction with the branch:

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
Opening Balance at Branch:		Amounts remitted to the Branch for :
- Petty Cash	1,000	- Petty Cash Expenses	4,000
- Stock	39,500	- Salary	12,000
- Debtors	21,000	- Rent and Taxes	3,500
Goods Supplied to Branch during the year	3,10,000	Closing balances ay Branch:
Amounts remitted by the branch		- Petty	950
- Cash Sales	1,13,200	- Debtors	53,000
- Realisation from Debtors	2,30,300	- Stock	26,500

A35)

IN THE BOOKS OF H.O.

Dr. NASIK BRANCH ACCOUNT. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d		By Bank (Remittance):
Branch petty cash	1,000	- Petty Cash Expenses	4,000
Branch Stock	39,500	- Salary	12,000
Branch Debtors	21,000	- Rent and Taxes	3,500
To Goods sent to Branch	3,10,000	Closing balance at Branch
To cash remitted for:		- Petty Cash	950
Petty Cash Expenses	4,000	- Debtors	53,000
Salary	12,000	- Stock	26,500
Rent	3,500
To General P&L (Bal Fig)	32,950
TOTAL	4,23,950	TOTAL	4,23,950

Q36) D of Delhi have a branch at Madras. Goods are sent by the Head Office at Invoice Price which is at the Profit of 25% on Cost Price. All the Expenses of the branch are paid by the Head Office. From the following particulars, prepare Branch Account in Head Office Books

BALANCES	OPENING	CLOSING
Stock at invoice	11,000	13,000
Debtors	1,700	2,000
Petty Cash	100	25
TOTAL	12,800	15,025

Goods sent to branch at invoice price Rs. 20,000.

Expenses made by head office: -Rent Rs.600, Wages Rs.200, Salaries Rs.900

Remittance made to Head Office: - Cash Sales Rs. 2,650, Cash collected from debtors Rs. 21,000

Goods Returned by Branch at Invoice Price Rs.400

A36)

IN THE BOOKS OF HEAD OFFICE

Dr. MADRAS BRANCH A/c. Cr.

PARTICULARS	AMOUNT	AMOUNT	PARTICULARS	AMOUNT	AMOUNT
To Balance b/d			By Stock Reserve A/c b/d(Load on OP. Stock 11,000 X 25/125)		2,200
Stock (IP)		11,000	By Bank
Debtors		1,700	Cash Sales	2,650
Petty Cash		100	Cash collected from Debtors	21,000	23,650
To Goods sent to Branch (IP)		20,000	By Goods sent to branch (Returns at IP)		400
To Bank (Expenses):			By Goods sent to branch (19,600 X 25/125; net Loading)		3,920
Rent	600		By Balance c/d
Wages	200		Stock (IP)	13,000
Salaries	900	1,700	Debtors	2,000
To Stock Reserve A/c c/d(Load on Cl. Stock 13,000 X 25/125)		2,600	Petty Cash	25	15,025
To Net Profit tfd to general P&L (Bal Fig)		8,095
TOTAL		45,195	TOTAL		45,195

Note: Goods are sent by Head Office at @ 25% on Cost Price.

So, Cost + Profit = Invoice Price

100 + 25 = 125

Profit charged by Head Office is 1/5 or 20% of Invoice Price.

Q37) One M.P. Head Office has a branch at Berhampur to which goods are invoiced at cost plus 20% .from the following particulars prepare the Branch Account in the Head Office Books :

PARTICULARS	AMOUNT
Goods sent to Branch at invoice Price	2,11,872
Total Sales	2,06,400
Cash Sales	1,10,400
Cash received from Branch Debtors	88,000
Branch Debtors at commencement	24,000
Branch Stock at commencement at Invoice price	7,680
Branch Stock at Close of the period at Invoice Price	13,440

A37)

IN THE BOOKS OF M.P. HEAD OFFICE

Dr. BERHAMPUR BRANCH ACCOUNT. Cr.

PARTICULARS	AMOUNT	AMOUNT	PARTICULARS	AMOUNT	AMOUNT
To Balance b/d			By Stock Reserve A/c b/d(Load on OP. Stock)		1,280
Stock (IP)		7,680	By Bank
Debtors		24,000	Cash Sales	1,10,400
To Goods sent to Branch (IP)		2,11,872	Cash collected from Debtors	88,000	1,98,400
To Stock Reserve A/c c/d(Load on Cl. Stock)		2,240	By Goods sent to branch (2,11,872 X 20/120; net Loading)		35,312
To Net Profit tfd to general P&L (Bal Fig)		34,640	By Balance c/d
			Stock (IP)	13,440
			Debtors	32,000	45,440



TOTAL		2,80,432	TOTAL		2,80,432

Working Note:

Dr. BERHAMPUR BRANCH DEBTORS ACCOUNT. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	24,000	By Cash	88,000
To Credit Sales	96,000	By balance c/d (balancing figure)	32,000
TOTAL	1,20,000	TOTAL	1,20,000

(2)

Total Sales =2,06,400

Less: - Cash Sales =1,10,400

Credit Sales =96,000

(3)

Goods are sent by Head Office at @ 20% on Cost Price.

So, Cost + Profit = Invoice Price

100 + 20 = 120

Profit charged by Head Office is 1/6 of Invoice Price.

Q38) The Canada commercial company invoiced goods to its Jaipur Branch at cost. The head office paid all the branch expenses from its bank except petty cash expenses which were Paid by the branch. From the following details relating to the branch, prepare

(1): Branch Stock A/c

(2)Branch Debtors A/c

(3)Branch Expenses A/c

(4)Branch P&L A/c

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
Stock (Opening)	21,000	Discount to Customer	4,200
Debtors (Opening)	37,800	Bad Debts	1,800
Petty Cash(Opening)	600	Goods returned by customers to branch	1,500
Goods sent to H.O.	78,000	Salaries	18,600
Goods returned to H.O.	3,000	Rent	3,600
Cash Sales	52,500	Debtors(Closing)	29,400
Advertisement	2,400	Petty Cash (Closing)	300
Cash received from debtors	85,500	Credit Sales	85,200
Stock(Closing)	19,500
Allowances to Customer	600

A38)

Dr. BRANCH STOCK A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	21,000	By Branch Cash	52,500
To Goods sent to sent Branch	78,000	By Goods sent to Branch	3,000
To Branch Debtors	1,500	By Branch Debtors	85,200
To Branch P&L (Transfer)	59,700	By Balance c/d	19,500
TOTAL	1,60,200	TOTAL	1,60,200

Dr. BRANCH DEBTORS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	37,800	By Branch Cash	85,500
To Branch Stock (Credit Sales)	85,200	By Branch expenses Bad Debts 1,800 Allowances 600 Discount 4,200	6,600
		By Branch Stock (Returns)	1,500
		By Balance c/d	29,400
TOTAL	1,23,000	TOTAL	1,23,000

Dr. BRANCH EXPENSES A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Debtors	6,600	By Branch P&L	31,500
To Bank Advertisement 2,400 Salaries 18,600 Rent 3,600	24,600
To Petty Expenses (600-300)	300

TOTAL	31,500	TOTAL	31,500

Dr. BRANCH PROFIT & LOSS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Expenses	31,500	By Branch Stock	59,700
To General P&L (Bal Fig)	28,200
TOTAL	59,700	TOTAL	59,700

Q39) The following are the details of ‘Indore Branch’ for the year 2018

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
Opening stock	6,000	Salaries	2,000
Opening Petty Cash	500	Rent	1,500
Opening Debtors	8,000	Closing Stock	8,000
Goods sent to Branch	24,000	Cash sent to Branch	2,200
Goods returned by Branch	800	Discount Allowed	100
Remittance from Branch	33,500	Bad Debts	150
Returns from Debtors	2,000	Commission Paid	750
Collection from Debtors	34,000	Closing Petty Cash	450
Cash Sales	1,500	Closing Debtors	9,000

Prepare: (1) Branch Stock A/c (2) Branch Debtors A/c (3) Branch Expenses A/c

(4) Branch P&L A/c (5) Branch Cash (6) Goods sent to Branch A/c

A39)

Dr. BRANCH STOCK A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	6,000	By Branch Cash (Cash Sales)	1,500
To Goods sent to sent Branch	24,000	By Goods sent to Branch	800
To Branch Debtors(Return Inwards)	2,000	By Branch Debtors(Credit Sales)	37,250
To Branch P&L (Transfer)	15,550	By Balance c/d	8,000
TOTAL	47,550	TOTAL	47,550

Dr. BRANCH DEBTORS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	8,000	By Branch Cash (Received from Debtors)	34,000
To Branch Stock (Credit Sales) (Bal Fig)	37,250	Branch expenses Bad Debts 150 Discount 100	250
		By Branch Stock (Returns)	2,000
		By Balance c/d	9,000
TOTAL	45,250	TOTAL	45,250

Dr. BRANCH CASH A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance (Petty Cash)	500	By Branch Expenses Salaries 2,000 Rent 1,500 Commission 750	4,250
To Bank (Remittance)	2,200	By Bank (Remittance from Branch)	33,500
To Branch stock (Cash Sales)	1,500	By Balance (Petty Cash)	450
To Branch Debtors (Received)	34,000

TOTAL	38,200	TOTAL	38,200

Dr. BRANCH EXPENSES A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Debtors	6,600	By Branch P&L	31,500
To Bank Advertisement 2,400 Salaries 18,600 Rent 3,600	24,600
To Petty Expenses (600-300)	300

TOTAL	31,500	TOTAL	31,500

Dr. BRANCH EXPENSES A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Debtors	250	By Branch P&L (Balance Transferred)	4,500
To Branch Cash	4,250


TOTAL	4,500	TOTAL	4,500

Dr. GOODS SENT TO BRANCH A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Stock	800	By Branch Stock	24,000
To Purchase	23,200


TOTAL	24,000	TOTAL	24,000

Dr. BRANCH PROFIT & LOSS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Expenses	4,500	By Branch Stock (Gross Profit)	15,550
To General P&L (Bal Fig)	11,050
TOTAL	15,550	TOTAL	15,550

Q40) Mumbai Textile Mills Ltd. Has branch at Agra. Goods are invoiced to branch at cost plus 50%. Branch remits all cash received to the head office and all expenses are met by head office. From the following particulars, prepare the necessary accounts under the Stock and Debtors system to Show the Profit Earned at the Branch:

PARTICULARS	AMOUNT
Stock on the 1st April,2013 (Invoice Price)	93,000
Debtors on 1st April,2013	68,000
Goods Invoiced to Branch (Cost)	3,40,000
Sales at Branch:
Cash	2,50,100
Credit	3,10,000
Cash Collected from Debtors	3,04,000
Goods Returned by Debtors	12,000
Goods Returned by Branch to head office	1,500
Shortage of Stock	4,500
Discount Allowed to Customer	2,000
Expenses at Branch	54,000

A40)

Dr. BRANCH STOCK A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	93,000	By Branch Cash (Cash Sales)	2,50,100
To Goods sent to sent Branch (3,40,000 X 150%)	5,10,000	By Branch Debtors(Credit Sales)	3,10,000
To Branch Debtors	12,000	By Goods sent to Branch	1,500
		By Branch Adjustment (Shortage)	4,500
		By Balance c/d	48,900
TOTAL	6,15,000	TOTAL	6,15,000

Dr. BRANCH ADJUSTMENT A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Stock(Shortage)	4,500	By Stock Reserve(Loading on Opening Stock)	31,000
To Goods Sent to Branch	500	By Goods Sent to Branch	1,70,000
To Gross Profit c/d	1,79,700
To Stock Reserve(Loading on Closing Stock)	16,300
TOTAL	2,01,000	TOTAL	2,01,000

Dr. BRANCH PROFIT & LOSS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Expenses	54,000	By Branch Stock (Gross Profit)	1,79,700
To Discount	2,000
To General P&L (Bal Fig)	1,23,700
TOTAL	1,79,700	TOTAL	1,79,700

Dr. GOODS SENT TO BRANCH A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Stock	1,500	By Branch Stock	5,10,000
To Branch Adjustment	1,70,000	By Branch Adjustment	500
To Trading A/c(Bal Fig)	3,39,000

TOTAL	5,10,500	TOTAL	5,10,500

Dr. BRANCH DEBTORS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	68,000	By Branch Cash (Received from Debtors)	3,04,000
		By Branch expenses (Discount)	2,000
To Branch Stock (Credit Sales)	3,10,000	By Branch Stock (Returns)	12,000
		By Balance c/d	60,000
TOTAL	3,78,000	TOTAL	3,78,000

Dr. BRANCH CASH A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Sales	2,50,100	By Head Office Cash	5,54,100
To Debtors	3,04,000	(Sent to HO)
TOTAL	5,54,100	TOTAL	5,54,100

Q41) A Ltd. has a branch in Calcutta. Goods are invoiced at cost plus 25%.
Opening Balance	2002
Stock	3,200
Debtors	1,300
Goods sent to Branch (Invoice price)	75,000
Sales at Calcutta
Cash Sales	32,000
Credit Sales	38,000
Cash collected from Debtors	33,400
Discount allowed	400
Bad Debts written off	250
Cash sent to Branch for expenses	5,500
Stock at end	7,900

A41)

BRANCH STOCK A/C
To Balance b/d	3,200	To Cash Sales	32,000
To Goods Sent to Branch A/c		By Branch Debtors	38,000
	75,000	By Branch Adjustment A/c	300
		By Balance c/d	7,900
	78,200		78,200
GOODS SENT TO BRANCH A/C
To br. Adjustment A/c (loading)	15,000	By Br. Stock A/c	75,000
To Trading A/c (Transfer)	60,000
	75,000		75,000

BRANCH STOCK RESERVE A/C

To Br. Adjustment A/c			640	By Balance b/d		640
To balance c/d			1,580	By Branch Adj. A/c		1,580
			2,220			2,220
BRANCH DEBTORS A/C
To Balance b/d			1,300	By Cash		33,400
To Branch Stock (Cr. Sales)			38,000	By Branch Exp. A/c
				Discount	400
				Bad Debts	250	650
				By Bal. c/d		5,250
			39,300			39,300
BRANCH ADJUSTMENT A/C
To Branch Stock Reserve
(closing stock) A/c			1,580	By Stock Reserve (opening stock)		640
To br. Stock A/c (shortage)			300
To Br. Exp. A/c			7,150	By Goods sent to br. A/c		15,000
To P & L A/c			6,610
			15,640			15,640
BRANCH EXPENSES A/C
To Cash			6,500	By Branch Adjustment A/c		7,150
To branch Dr.s A/c
	Discount	400
	Bad Debts	250	650
			7,150			7,150

Q42) From the following Trial Balance, prepare Departmental Trading and Profit and Loss Account for the year ended 31.12.2013 and a Balance Sheet as at the date in the books of Sri S. Maity:

Particulars	Dr. Rs.	Cr. Rs.
Stock (1.1.2013): Dept. A Dept. B Purchases: Dept. A Dept. B Sales: Dept. A Dept. B Wages: Dept. A Dept. B Rent Salaries Lighting and Heating Discount Allowed Discount Received Advertising Carriage Inward Furniture and Fittings Plant and Machinery Sundry Debtors Sundry Creditors Capital Drawings Cash in hand Cash at Bank	5,400 4,900 9,800 7,350 1,340 240 1,870 1,320 420 441 738 469 600 4,200 1,820 900 32 1,980	16,900 13,520 133 3,737 9,530
	43,820	43,820

The following information is also provided:

Rent and Lighting and Heating are to be allocated between Factory and Office in the ratio of 3:2. Rent, Lighting and Heating, Salaries and Depreciation are to be apportioned to A and B Depts. as 2:1. Other expenses and incomes are to be apportioned to A and B Depts. on suitable basis.

The following adjustments are to be made:

Rent Prepaid Rs 370; Lighting and Heating outstanding Rs 180; Depreciation of Furniture and Fittings @ 10% p.a. and Plant and Machinery @ 10% p.a.

The Stock at 31.12.2012: Dept. A Rs 2,748; Dept. B Rs 2,401.

A42)

In the books of Sri S. Maity

Departmental Trading and Profit & Loss Account for the year ended 31.12.2013

Dr. Cr.

Particulars	Dept. A Rs	Dept. B Rs	Total Rs	Particulars	Dept. A Rs	Dept. B Rs	Total Rs
To Opening Stock	5,400	4,900	10,300	By Sales ,, Closing Stock By Gross Profit b/d ,, Dis. Received (4 :3) ,, Net Loss	16,900	13,520	30,420
To Purchase	9,800	7,350	17,150		2,748	2,401	5,149
To Wages	1,340	240	1,580
To Carriage Inwards (4:3)	268	201	4691
To Rent	600	300	9006
To Lighting and Heating	240	120	3602
To Gross Profit c/d	2,000	2,810	4,810
	19,648	15,921	35,569		19,648	15,921	35,569
To Rent	400	200	6006		2,000	2,810	4,810
To Advertisement	410	328	7384
To Salaries (2:1)	880	440	1,3205
To Lighting and Heating	160	80	2402		76	57	1337
To Discount Allowed					339	---	---
(on Sales)	245	196	4413
To Dep. On (2:1)
Plant & Machinery	280	140	420
Furniture & Fixture	40	20	60
To Net Profit	---	1,463	1,124
	2,415	2,867	4,943		2,415	2,867	4,943

Balance Sheet as at 31.12.2013

Liabilities	Amount Rs	Amount Rs	Assets	Amount Rs	Amount Rs
Capital	9,530		Plant and Machinery	4,200
Add: Net Profit	1,124		Less: Depreciation	420	3,780
	10,654		Furniture and Fittings	600
Less: Drawings	900	9,754	Less: Depreciation	60	540
Sundry Creditors		3,737
Outstanding Liabilities:			Closing Stock:
Lighting and Heating		180	Dept. A	2,748
			Dept. B	2,401	5,149
			Sundry Debtors		1,820
			Prepaid Rent		370
			Cash at Bank		1,980
			Cash in Hand		32
		13,671			13,671

Workings:

Allocation of Expenses and Incomes

Sl. No.	Expense/Income	Basis	Dept. A	Dept. B
1	Carriage Inward	Purchase (4:3)	=Rs 469 x 4/7 = Rs 268	= Rs 469 x 3/7 = Rs 201
2	Lighting & Heating (Rs 420 + Rs 180) Factory part = 600 x 3/5 Office part = 600 x 2/5	Rs 600 (Given) 360 240	= Rs 360 x 2/3 = Rs 240 = Rs 240 x 2/3 = Rs 160	= Rs 360 x 1/3 = Rs 120 = Rs 240 x 1/3 = Rs 80
3	Discount Allowed	= Sales	= Rs 441 x (16900/30420) = Rs 245	= Rs 441 x (13520/30420) = Rs 196
4	Advertisement	= Sales	= Rs 738 x (16900/30420) = Rs 410	= Rs 738 x (13520/30420) = Rs 328
5	Salaries	2 : 1	= Rs 1,320 x (2/3) = Rs 880	= Rs 1,320 x (1/3) = Rs 440
6	Rent Rs 1,500 = (Rs 1,870 – Rs 370) Factory part = 1,500 x 3/5 = 900 Office part = 1,500 x 2/5 =600	2 : 1 2 : 1	= Rs 900 x (2/3) = Rs 600 = Rs 600 x (2/3) = Rs 400	= Rs 900 x (1/3) = Rs 300 = Rs 600 x (1/3) = Rs 200
7	Discount Received	Purchase (4:3)	= Rs 133 x (4/7) = Rs 76	= Rs 133 x (3/7) = Rs 57

Q43) The Trading and Profit & Loss Account of Bindas Ltd. for the year ended 31st March is as under:

Particulars		Amount Rs	Particulars		Amount Rs
Purchases			Sales
Transistors	(A)	1,60,000	Transistors	(A)	1,75,000
Tape Recorders	(B)	1,25,000	Tape Recorders	(B)	1,40,000
Spare parts for Servicing and			Servicing and Repair Jobs	(C)	35,000
Repair Job	(C)	80,000	Stock on 31st March
			Transistors	(A)	60,100
Salaries and wages		48,000	Tape Recorders	(B)	20,300
Rent		10,800	Spare parts for servicing &
Sundry Expenses		11,000	repair jobs	(C)	44,600
Net Profit		40,200
		4,75,000			4,75,000

Prepare Departmental Accounts for each of the three Departments A, B and C mentioned above after taking into consideration the following :

Transistors and Tape Recorders are sold at the Showroom. Servicing and Repairs are carried out at the Workshop.

Salaries and wages comprise as follows: Showroom 3/4th and Workshop 1/4th

It was decided to allocate the Showroom Salaries and Wages in ratio 1:2 between Departments A and B.

Workshop Rent is Rs 500 per month. Showroom Rent is to be divided equally between Departments A and B.

Sundry Expenses are to be allocated on the basis of the turnover of each Department.

A43) Departmental P&L Accounts for the year ended 31st March (Amount in Rs)

Dr. Cr.

Particulars	A Rs	B Rs	C Rs	Particulars	A Rs	B Rs	C Rs
To Purchases		1,25,000	—	By Sales	1,75,000	1,40,000	—
To Spares	—	—	80,000	By Services	—	—	35,000
To Salary & Wages	12,000	24,000	12,000	By Closing Stock	60,100	20,300	44,600
To Rent	2,400	2,400	6,000	By Net Loss	—	—	19,500
To Sundry Expenses*	5,500	4,400	1,100
To Net Profit	55,200	4,500
	2,35,100	1,60,300	99,100		2,35,100	1,60,300	99,100

Note : Sundry Expenses are apportioned in the ratio of Turnover (5 : 4 : 1) i.e. 1,75,000 : 1,40,000 : 35,000.

Inter Departmental Transfer

Transfer made by one department to another may be recorded either:

At Cost Price; and

At Invoice Price i.e., Market Based Price.

At Cost Price

When transfers are made, Recipient Department should be debited at cost price and Transferring Department should be credited at Cost Price.

Q44) Make an appropriate entry for inter transfer of goods from one department to another. Department A transferred goods for Rs 30,000 to Department B.

A44)

In the Books of...

Journal

Date	Particulars	L/F	Debit Rs	Credit Rs
	Department Trading (B) A/c Dr. To Department Trading (A) A/c (Goods are transferred to Department B from Department A.)		30,000	30,000

At Invoice Price i.e. Provision for unrealized Profit.In case of goods transfer from one department to another, no problem arises if all goods are sold within the year. On the other hand, problem arises where all goods are not sold. Under the circumstances, appropriate adjustments must be made against the unsold stock for ascertaining the correct profit or loss. As such, provision to be made for both opening stock and closing stock. The entries for this purpose are:

For Opening Stock Reserve:

Opening Stock Reserve A/c Dr.

To General Profit and Loss A/c

For Closing Stock Reserve:

General Profit and Loss A/c Dr.

To Closing Stock Reserve A/c

Q45) Department A sells goods to Department B at a profit of 25% on cost and to department C at 10% profit on cost. Department B sells goods to Department A and Department C at a profit of 15% and 20% on sales respectively. Dept. C charges 20% and 25% profit on cost and department A and department b respectively.

Department managers are entitled to 10% commission on net profit after eliminating unrealised profit on department sales being eliminated. Departmental profit after charging managers commission but before adjustment of unrealized profits are: Dept. A Rs 72,000; Dept. B Rs 54,000; and Dept. C Rs 36,000. Stock lying at different departments at the end of the year are:

Particulars	Department A Rs	Department B Rs	Department C Rs
Transfer from Department A Transfer from Department B Transfer from Department C	--- 28,000 12,000	30,000 --- 10,000	22,000 24,000 ---

Find out the correct departmental profit after charging manager’s commission.

A45)

Computation of correct Profit

Particulars	Department A Rs	Department B Rs	Department C Rs
Profit after charging manager’s commission. Add back: Manager’s Commission @ 1/9th	72,000 8,000	54,000 6,000	36,000 4,000
Less: Unrealised Profit on stock	80,000 8,000	60,000 9,000	40,000 4,000*
Profit before charging Manager’s Commission Less: Manager’s Commission @10% Correct Profit after charging commission	72,000 7,200	51,000 5,100	36,000 3,600
	64,800	45,900	32,400

Workings:

Computation of unrealized Profit on Stock

Particulars	Department A Rs	Department B Rs	Department C Rs	Total Rs
Department - A	---	30,000 x 1/5 = Rs 6,000	22,000 x 1/11 = Rs 2,000	8,000
Department - B	28,000 x 15/100 = Rs 4,200	---	24,000 x 20/100 = Rs 4,800	9,000
Department - C	12,000 x 1/6 = Rs 2,000	10,000 x 1/5 = Rs 2,000	---	4,000

Q46) Snow White Ltd has two departments — Cloth and Readymade Clothes. Ready Made Clothes are made by the Firm itself out of cloth supplied by the Cloth Department at its usual selling price. From the following figures, prepare Departmental Trading and Profit and Loss Accounts for the year ended 31st March 2013.

Particulars	Cloth Department (Rs)	Readymade Clothes (Rs)
Opening Stock on 1st April, 2012 Purchases Sales Transfer to Readymade Clothes Department Expenses - Manufacturing Selling Closing Stock on 31st March, 2013	3,00,000 20,00,000 22,00,000 3,00,000 — 20,000 2,00,000	50,000 15,000 4,50,000 — 60,000 6,000 60,000

The Stock in the Readymade Clothes Department may be considered as consisting of 75% Cloth and 25% other expenses. The Cloth Department earned Gross Profit at the rate of 15% during the year 2011-12. General Expenses of the business as a whole came to Rs 1,10,000.

A46)

Departmental Trading and Profit and Loss A/c for the year ended 31st March 2013

Dr. Cr.

Particulars	Cloth (Rs)	RM (Rs)	Total (Rs)	Particulars	Cloth (Rs)	RM (Rs)	Total (Rs)
To Opg. Stock	3,00,000	50,000	3,50,000	By Sales	22,00,000	4,50,000	26,50,000
To Purchases	20,00,000	15,000	20,15,000	By Tfr. to RM	3,00,000	—	3,00,000
To Tfr from	—	3,00,000	3,00,000	By Closing	2,00,000	60,000	2,60,000
Cloth Dept.				Stock
To Mfg. Exps.		60,000	60,000
To Gross Profit	4,00,000	85,000	4,85,000
	27,00,000	10,000	32,10,000		27,00,000	5,10,000	32,10,000
To Selling Exp.	20,000	6,000	26,000		4,00,000	85,000	4,85,000
To Profit c/d	3,80,000	79,000	4,59,000	By Gross Profit
To Profit c/d	4,00,000	85,000	4,85,000	By Gross Profit	4,00,000	85,000	4,85,000
				By Profit b/d			4,59,000
To Gen. Exp. To Stock Reserve			1,10,000 1,575
(See Note below) To Net profit			3,47,425
(See Note below) To Net profit			4,59,000				4,59,000

Note 1: Stock Reserve to be additionally provided is 7,200 – 5,625 = Rs 1,575; calculated as under:

Particulars	On Opening Stock	On Closing Stock
Rate of GP on Sales in Cloth Dept Element of Cloth Stock in Readymade Clothes Stock Reserve required to be maintained	Given = 15% 75% of 50,000 = 37,500 37,500 × 15% = 5,625	4,00,000 ÷ 25,00,000 = 16% 75% of 60,000 = 45,000 45,000 × 16% = 7,200

Note 2: In this case, it is possible to ascertain the Reserve already created against Unrealised Profit in the Opening Stock. In the absence of information, the Reserve should be calculated on the difference in the Opening and Closing Stocks i.e. Rs 10,000 in this question. Since the Closing Stock has increased, the Reserve calculated would be debited to P&L A/c. In case of decrease in Stocks, the Reserve would be credited to P&L A/c.

Q47) A & Co. has two departments P & Q. department P sells goods to department Q at normal selling prices. From the following particulars, prepare departmental Trading & PL account for the year ended 31.03.2018 and also ascertain the net profit to be transferred to Balance Sheet:

Particulars	Department P (Rs)	Department Q (Rs)
Opening stock	5,00,000	NIL
Purchases	28,00,000	3,00,000
Goods from P	NIL	8,00,000
Wages	3,50,000	2,00,000
Travelling expenses	20,000	1,60,000
Closing stock at cost to the department	8,00,000	2,09,000
Sales	30,00,000	2,00,0000
Printing & Stationery	30,000	25,000

The following expenses incurred for both the departments were not apportioned between the departments:

Salaries Rs 33,000, advertisement expenses Rs 1,20,000, General expenses Rs 5,00,000, Depreciation is to be charged @30% on the machinery worth Rs 96,000.

The advertisement expenses of the departments are to be apportioned in the turnover ratio. Salaries and depreciation are to be apportioned in the ratio 2:1 and 1:3 respectively. General expenses are to be apportioned in the ratio 3:1.

A47)

A & CO.

Departmental Trading and P/L Account for the year ended 31.03.2018

Dr. Cr.

Particulars	Deptt. P (Rs)	Deptt. Q (Rs)	Total (Rs)	Particulars	Deptt. P (Rs)	Deptt. Q (Rs)	Total (Rs)
To Opening Stock		Nil	5,00,000	By Sales	30,00,000	20,00,000	50,00,000
To Purchases	28,00,000	3,00,000	31,00,000	By Goods transferred to Q	8,00,000
To Goods from P		8,00,000		By Closing Stock	8,00,000	2,09,000	10,09,000
To Wages	3,50,000	2,00,000	5,50,000
To Gross Profit c/d	9,50,000	9,09,000	18,59,000
	46,00,000	22,09,000	60,09,000		46,00,000	22,09,000	60,09,000
To Travelling Expenses	20,000	1,60,000	1,80,000	By Gross Profit b/d	9,50,000	9,09,000	18,59,000
To Printing & Stationery	30,000	25,000	55,000
To Salaries (2:1)	2,20,000	1,10,000	3,30,000
To Advertisement Expenses (3:2)	72,000	48,000	1,20,000
To General Expenses (3:1)	3,75,000	1,25,000	5,00,000
To Depreciation (1:3)	7,200	21,600	28,800
To Net Profit c/d	2,25,800	4,19,400	6,45,200
	9,50,000	9,09,000	18,59,000		9,50,000	9,09,000	18,59,000
				By Net Profit b/d			6,45,200
To Provision for unrealised profit on closing stock (note 2)			38,000
To Capital A/c (net profit transferred)			6,07,200

Working notes:

1. Gross profit ratio of department P = 9,50,000/(30,00,000 + 8,00,000)×100 = 25%

2. Proportionate P department’s stock in department Q

(Purchase from department P/total purchases of department Q)*total stock of department Q

= Rs (8,00,000/11,00,000) × Rs 2,09,000 = Rs 1,52,000

Unrealized profit = 25% of Rs1,52,000 = Rs 38,000

Q48) Samudra & Co, a Partnership Firm has three departments viz. K, L, M which are under the charge of the Partners B, C and D respectively. The following Consolidated P&L Account is given below:

Dr. Profit and Loss Account Cr.

Particulars	Amount Rs	Particulars	Amount Rs
To Opening Stocks (Note 1)	81,890	By Sales (Note 7)	4,00,000
To Purchases (Note 2)	2,65,700	By Closing Stocks (Note 8)	89,000
To Salaries and Wages	48,000	By Discounts Received (Note10)	800
(Note 3)
To Rent Expenses (Note 4)	10,800
To Selling Expenses (Note 5)	14,400
To Discount Allowed (Note 5)	1,200
To Depreciation (Note 6)	750
To Net Profit for the year	67,060
	4,89,800		4,89,800

From the above Account and the following additional information, prepare the Departmental P&L Accounts for the year ended 31st March, 2013.

Break up of Opening Stock Department wise is: K - Rs 37,890; L - Rs 24,000 and M - Rs 20,000.

Total Purchases were as under: K - Rs 1,40,700; L - Rs 80,600; M - Rs 44,400.

Salaries and Wages include Rs 12,000 wages of Department M. The balance Salaries should be apportioned to the three departments as 4:4:1.

Rent is to be apportioned in the ratio of floor space which is as 2:2:5.

Selling Expenses and Discount Allowed are to be apportioned in the ratio of Turnover.

Depreciation on assets should be equally charged to the three departments.

Sales made by the three departments were: K - Rs 1,80,000; L - Rs 1,30,000 and M - Rs 90,000.

Break up of Closing Stock Department wise is: K - Rs 45,100; L - Rs 22,300 and M - Rs 21,600. The Closing Stock of Department M includes Rs 5,700 goods transferred from Department K. However, Opening Stock does not include any goods transferred from other departments.

Departments K and L sold goods worth Rs 10,700 and Rs 600 respectively to Department M.

Discounts received are traceable to Departments K, L and M as Rs 400; Rs 250 and Rs 150 respectively.

Partners are to share the profits as under: (a) 75% of the Profits of Departments K, L and M to the respective Partner in Charge, (b) Balance Profits to be credited as 2:1:1.

A48)

Departmental P&L Accounts for the year ended 31st March, 2013

Dr. Cr.

Particulars	K (Rs)	L (Rs)	M (Rs)	Particulars	K (Rs)	L (Rs)	M (Rs)
To Opening Stock		24,000	20,000	By Sales	1,80,000	1,30,000	90,000
To Purchases	1,40,700	80,600	44,400	By Transfer	10,700	600	—
To Inter-Dept Trf	—	—	11,300	By Closing Stock	45,100	22,300	21,600
To Wages	—	—	12,000
To Gross Profit c/d	57,210	48,300	23,900
	2,35,800	1,52,900	1,11,600
To Salaries (4:4:1)	16,000	16,000	4,000		2,35,800	1,52,900	1,11,600
To Rent (2:2:5)	2,400	2,400	6,000	By Gross Profit b/d	57,210	48,300	23,900
To Selling Exp	6,480	4,680	3,240	By Discounts
To Disc. (18:13:9)	540	390	270	Received
To Depreciation	250	250	250		400	250	150
To Net Profit c/d	31,940	24,830	10,290
	57,610	48,550	24,050		57,610	48,550	24,050

2. Computation of Stock Reserve

From the above profits, Stock Reserve should be eliminated on the Closing Stock.

GP Rate in Department K = (57,210 x 100)/1,90,700 = 30%.

Stock Reserve = 30% on Rs 5,700 = Rs 1,710.

3. Profit and Loss Appropriation Account

Dr. Cr.

Particulars		Amount Rs	Particulars	Amount Rs
To Stock Reserve		1,710	By Profit b/d	67,060
To Profits transferred to Capital:			(31,940 + 24,830 + 10,290)
B : 75% of 31,940	23,955
C : 75% of 24,830	18,623
D : 75% of 10,290	7,718	50,296
To balance profits trfd in 2: 1: 1
B : 50% of 15,054	7,527
C : 25% of 15,054	3,763
D : 25% of 15,054	3,764
(bal.fig)		15,054
		67,060		67,060

Q49) Pooma Ltd. has 2 departments M & S. From the following particulars, prepare Departmental Trading Account & Consolidated Trading Account for the year ended 31st March, 2013.

Particulars	M (Rs)	S (Rs)
Opening Stock Purchases Carriage Inwards Wages Sales (excluding inter departmental transfers) Purchased Goods transferred By S to M By M to S Finished Goods transferred By S to M By M to S Return of Finished Goods By M to S By S to M Closing Stock Purchased Goods Finished Goods	20,000 92,000 2,000 12,000 1,40,000 10,000 — 35,000 — 10,000 — 4,500 24,000	12,000 68,000 2,000 8,000 1,12,000 — 8,000 — 40,000 — 7,000 6,000 14,000

Purchased Goods have been transferred at their respective departmental Purchase Cost & Finished Goods at Departmental Market Price. 20% of Finished Stock (Closing) at each Department represented Finished Goods received from the other Department.

A49)

Departmental Trading, Profit & Loss Account for the year ended 31st March, 2013

Dr. Cr.

Particulars	M (Rs)	S (Rs)	Particulars	M (Rs)	S (Rs)
To Opening Stock		12,000	By Sales	140,000	112,000
To Purchases	92,000	68,000	By Transfer:
To Transfer :			Purchased Goods	8,000	10,000
Purchased Goods	10,000	8,000	Finished Goods	35,000	40,000
Finished Goods	40,000	35,000	By Closing Stock Purchased
To Wages	12,000	8,000	Goods	4,500	6,000
To Carriage Inwards	2,000	2,000	Finished Goods out of t/f	4,800	2,800
To Return of Finished Goods	7,000	10,000	Balance	19,200	11,200
To Gross Profit	38,500	46,000	By Return of Finished Goods	10,000	7,000

	2,21,500	1,89,000		2,21,500	1,89,000

b. Calculation of Gross Profit Ratio

Particulars	M (Rs)	S (Rs)
Sales Add : Transfer of Finished Goods Less : Return of Finished Goods Net Sales [A] Gross Profit [B] as calculated below Gross Profit Ratio [B ÷ A]	140,000 35,000 (7,000) 168,000 38,500 22.9%	112,000 40,000 (10,000) 142,000 46,000 32.4%

c. Consolidated Trading Account for the year ended 31st March, 2013

Dr. Cr.

Particulars		Amount (Rs)	Particulars		Amount (Rs)
To	Opening Stock (20,000+12,000)		By	Sales (1,40,000 + 1,12,000)	2,52,000
To	Purchases (92,000 + 68,000)	160,000	By	Closing Stock
To	Wages (12,000 + 8,000)	20,000	By	Purchase Goods 10,500
To	Carriage Inwards	4,000		(4,500+6,000)
	(2,000+2,000)		By	Finished Goods 38,000	48,500
To	Stock Reserve:			(24,000+14,000)
	[24,000 × 20%] × 32.4%	1,555
	[14,000 × 20%] × 22.9%	641
To	Net Profit	82,304
		3,00,500			3,00,500

Q50) Department X sells goods to Department Y at a profit of 25% on cost & to Department Z at a profit of 10% on cost. Department Y sells goods to X & Z at a profit of 15% & 20% on sales, respectively.

Department Z charges 20% & 25% profit on cost to Department X & Y, respectively.

Department Managers are entitled to 10% Commission on Net Profit subject to Unrealized profits on Departmental sales being eliminated.

Departmental profits after charging manager’s commission, bur before adjustment of unrealized profits are : X = Rs 36,000; Y = Rs 27,000; Z = Rs 18,000

Stocks lying at different departments at the year end are as under :

Particulars	X (Rs)	Y (Rs)	Z (Rs)
Transfer from Department X Transfer from Department Y Transfer from Department Z	— 14,000 6,000	15,000 — 5,000	11,000 12,000 —

Find out the correct Departmental Profits after charging Managers’ Commission.

A50)

Computation of Unrealised Profits

From Department X to Y and Z at 25% and 10% of Cost	Nil	15,000 × 25/125 = 3,000	11,000 × 10/110 = 1,000	4,000
From Department Y to X and Z at 15% and 20% of Sales	14,000 × 15/100 = 2,100	Nil	12,000 × 20/100 = 2,400	4,500
From Department Z to X and Y at 20% and 25% of Cost	6,000×20/120 = 1,000	5,000×25/125 = 1,000	Nil	2,000

Computation of Correct Departmental Profits after charging Manager’s Commission correctly

Particulars	Department X (Rs)	Department Y (Rs)	Department Z (Rs)
Profits after charging Manager’s Commission Add : Wrong Commission = 10% of Profits = 1/10 on Profits before charging commission = 1/9 on Profits after charging commission	36,000 1/9 × 36,000 = 4,000	27,000 1/9 × 27,000 = 3,000	18,000 1/9 × 18,000 = 2,000
Profits before charging commission Less : Unrealised Profits i.e. Stock Reserve	40,000 4,000	30,000 4,500	20,000 2,000
Profits qualifying for commission Less : Commission at 10% of above	36,000 3,600	25,500 2,550	18,000 1,800
Correct Profits after charging commission	32,400	22,950	16,200

Q51) The following details are available in respect of a business for a year.

Department	Opening Stock	Purchase	Sales
X Y Z	120 units 80 units 152 units	1,000 units 2,000 units 2,400 units	1,020 units at Rs 20.00 each 1,920 units at Rs 22.50 each 2,496 units at Rs 25.00 each

The total value of purchases is Rs 1,00,000. It is observed that the rate of Gross Profit is the same in each department. Prepare Departmental Trading Account for the above year.

A51)

Computation of Closing Stock Quantity (in units)

Particulars	X	Y	Z
Opening Stock Add: Purchases Less : Units Sold	120 1,000 (1,020)	80 2,000 (1,920)	152 2,400 (2,496)
Closing Stock	100	106	56

Computation of Gross Profit Ratio

We are informed that the GP Ratio is the same for all departments. Selling Price is given for each department’s products but the Sale Quantity is different from that of Purchase Quantity. To find the Uniform GP Rate, the sale value of Purchase Quantity should be compared with the Total Cost of Purchase, as under. Assuming all purchases are sold, the sale proceeds would be

Department	X	1,000	units	@	Rs 20.00	20,000
Department	Y	2,000	units	@	Rs 22.50	45,000
Department	Z	2,400	units	@	Rs 25.00	60,000
Total Sale Value of Purchase Quantity		125,000
Less : Cost of Purchase		1,00,000
Gross Profit Amount Gross Profit Ratio		25,000 25,000 ÷ 1,25,000				20% of Selling Price

Computation of Profit and Cost for each article

Department	Selling Price	Profit at 1/5 of SP	Cost = Sales – Profit
Department X Department Y Department Z	Rs 20.00 Rs 22.50 Rs 25.00	1/5 of Rs 20.00 = 4.00 1/5 of Rs 22.50 = 4.50 1/5 of Rs 25.00 = 5.00	Rs 16.00 Rs 18.00 Rs 20.00

Departmental Trading Account for the year ended

Dr. Cr.

Particulars	X (Rs)	Y (Rs)	Z (Rs)	Total (Rs)	Particulars	X (Rs)	Y (Rs)	Z (Rs)	Total (Rs)
To Op. stock To Purchase To Gross Profit	1,920 16,000 4,080	1,440 36,000 8,640	3,040 48,000 12,480	6,400 100,000 25,200	By Sales By Cl. stock	20,400 1,600	43,200 2,880	62,400 1,120	126,000 5,600
To Op. stock To Purchase To Gross Profit	22,000	46,080	63,520	131,600	By Sales By Cl. stock	22,000	46,080	63,520	131,600

Opening and Closing Stocks are valued at Cost as indicated in WN 3 above. Sale Amount in the Trading Account is computed for the Sale Quantity only. Gross Profit is calculated at 20% of Sale Value.

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